Can I claim self education expenses?
January 29th, 2007To claim self education expenses, the course must be to gain a formal education for use in a profession, business or trade as part of your current employment.
- At the time the expense was incurred (tax terminology), there has to be a direct connection between the self education and current work activites that will enable you to maintain or improve the skills or specific knowledge on which your income earning activities are based.
- There is a direct connection between the self education and current work activities because you can show that the study leads to increased income from your current work activities.
- Other circumstances exist where there is a direct connection between your self education and current work activities.
A deduction will not be allowed if the study is to get a new job or open up a new business. This includes studies relating to a particular field you are not currently working in. For example, a hairdresser cannot claim a beautician’s course even if it will get them extra work in their current employment because they are not currently working as a beautican.
Self education expenses cannot be claimed if you receive income received from:
- Youth allowance
- Austudy payments
- ABSTUDY oatnebts
- Assistance for Isolated Children (AIC)
- Veteran’s Children Education Scheme (VCES)
- Similar schemes that provide payments in the nature of assistance.
Tax tips and tax implications for students
January 25th, 2007The school year is about to start, so this this is a good time to recap on some implications of tax and schooling.
Work full time/part time, study part time
- If you work full time or part time, then to claim school expenses your study must relate directly to your current occupation. If you are doing the study so that you can change jobs or even move into a different field in the same company, then the schooling is not deductible. Keep in mind that you must have started the job before you begin the study.
- For schooling and study that is work related, remember to record all your mileage and keep all your receipts. Your tax agent will sort out what you can claim and what you can’t. It is better to have too much documentation than not enough. If you do your own tax, the ATO website can give you more details.
- HECS/HELP is not claimable.
Study full time, work part time
- Each time you start a new job, you will be asked to fill out a tax file number declaration form. If you are a student working part-time to make ends meet, and have two or more jobs, the second and subsequent times you fill one of these forms you should tick no to question 9 on the form, the question that asks “Do you want to claim the tax-free threshold from this payer?” Do this even if you do not work the jobs at the same time. When your first job, for example, is from July to September, and your second is from December to June. Better still, tick no to that first job as well. You don’t miss money you never had to start with. If you have no other tax expenses you will get money back at the end of the year, and if you do have other tax expenses the extra money you paid to the Tax Office might just cover most of those expenses.
- Don’t forget you have to pay tax on your bank interest. In most cases, tax has not been taken out of the interest and will increase your income. Remember, too, that bank interest is taxed at a much higher rate for students under 18 than it is if you are over 18.
- HECS/HELP is not claimable.
We’ll look into these in more detail in future blogs.
New Year Tax Resolutions
January 16th, 2007Now is the time of the year where you make all your New Year resolutions. Lose weight, get fit, paint the house, do the garden, give up smoking, give up chocolate.
You should also take time out to make a tax resolution:
- I will keep all my work related receipts and they will be in one place, easy to find come July 1.
- I will buy a lever arch file (they are on sale now with all the back to school specials) and keep all my bank statements, dividend statements and any other relevant documentation in this folder.
- If I sell any shares, I will keep that information, and also the information relating to the purchase. I know my tax agent will need both bits of information.
- I will buy an A4 envelope, punch holes in it and keep it in the folder as well. I will put all my small receipts—which are too small to file on their own—into the envelope (including the receipt for the envelope and the lever arch file).
- Now that the holidays are over I will start a log book and keep it for 12 consecutive weeks.
- I will remember to find my odometer reading from July 1 last year, and will remember to record my odometer reading on June 30 this year. I will take both these to my tax agent when I get my tax done.
- I will remember to keep all my service receipts, registration, interest payments, and any other car related expenses because I have kept a log book, and have done over 5000kms for the year (1154 kms in 12 weeks work related).
- I have recorded my travel to school (if it is work related), to meetings and any other work related travel. I will continue to do so for the next six months.
- I will record my work related parking (for work—but not all day parking) and any tolls for business related trips. Getting to and from work does not count.
- If I use public transport for work related travel, I will keep all my public transport tickets (as I have been doing for the last six months).
- I will remember to continue this after June 30. I will create a new folder and envelope for the new tax year.
- I will make a list of anything my tax agent asks me to keep or bring in and will keep this list at the front of my folder so I can refer to it at any time.
- I will make my tax agent very happy.
Tax and Christmas—two subjects we don’t generally think about together
December 20th, 2006Christmas is not a time we want to think about tax, so I won’t be posting anything more until mid-late January, 2007.
All the best for the festive season. Enjoy the holiday.
Tax courses
December 12th, 2006Both H&R Block and ITP run tax courses.
These courses are aimed at:
- Anyone who wants to learn about tax
- People who want to work as tax preparers
- Accountants who need to learn more about taxation.
If you want to learn how to manage your own tax affairs these are good courses to do, but beware. They are not for the faint-hearted. They pack a lot of tax information in, and you move through the information quickly.
Courses start in February and run for 16 weeks. There are two exams.
If you want to know more check out the companies’ respective web-sites.
- Details of the H&R Block course can be found here
- Details of the ITP course can be found here.
When is a uniform not a uniform for taxation purposes?
December 4th, 2006The larger department stores require their staff to wear only black and white. Black pants or skirt, white or black shirt. Many restaurants have a similar clothing policy, often a black shirt and trousers.
It’s a uniform.
However, when you show up at your tax office with all the dry cleaning/laundry receipts, what does your tax agent say?
“I am sorry, but you can’t claim that as a uniform.”
“But it’s compulsory,” you protest.
The tax agent counters, “You could reasonably wear those clothes anywhere.”
“But I never do. I can’t wait to get out of them when I get home. And as for wearing them on the weekends…” You shudder. “I am so sick of black and white I wear reds, and vibrant purples.”
You tax agent shakes his head sadly. “I’m sorry, but you still can’t claim them.”
The ATO will only accept clothing as a uniform in the following cases:
- If the uniform is registered with the Tax Office, or
- If it is specific to the trade e.g. Chef’s uniform, or
- It is protective clothing such as mechanics’ overalls or a nurse’s uniform, or
- If it is corporate uniform with a recognisable logo, such as those worn by bank staff.
You cannot claim clothing as a deduction just because your company makes you wear it.
If the clothing is considered street wear, that is you can go into a shop and buy it pretty much anywhere, then you cannot claim it.
What is negative gearing? An example
November 28th, 2006You hear so much about negative gearing, but how exactly does it work?
Suppose you take out a loan for an investment property. Repayments are $2,000 per month.
You rent the house to a tenant, who pays $1,200 per month.
You have to find an extra $800 per month out of your own pocket just to cover the repayments. That’s negative gearing.
But what are the benefits of negative gearing? Let’s keep it simple. We won’t include agents fees or repairs or anything else.
At the end of the year you have paid $24,000 off the loan. $20,000 of this was interest. Your tenant has paid $14,400 in rent.
Interest is a cost.
So far, your costs are $20,000. Note this. It is not the amount of money you repaid, it is the cost. That’s a very important difference.
$20,000 less $14,400 is $5,600. This is the amount you can offset against other income—$5,600.
Thus, if your salary is, say, $80,000, you can reduce the amount of money you pay tax on by $5,600.
In 2006 you would have paid:
Tax on $80,000 = $21,900 (+$1,200 medicare = $23,100)
Tax on $74,400 = $19,548 (+$1,116 medicare = $20,664)
Given that you have already paid tax on the full $80,000, you will get a refund of $2,436 A nice tax return, but not $5,600.
People talk about the benefits of negative gearing, but you have to ask yourself, “Is it worth it? Is it worth paying out an extra $800 per month ($9,600 per year), just to get $2,436 back.
Not necessarily.
If you are negatively gearing just for the tax benefits, then you’re doing it for the wrong reasons.
Negative gearing seems to have fallen out of fashion
November 23rd, 2006For a while there everyone seemed to be getting into negative gearing, including the investors where I worked. The advice to negatively gear came from financial planners, from newspapers, from magazines.
Where I worked we had an informal club of investors—people who actively traded shares or invested in property. We sat down one day and discussed our investments. I was the only one who was not negatively geared.
Everyone thought I was crazy. Think of the tax benefits I was missing out on.
I said then, and would still say it, that I preferred to pay a little extra tax than take extra money out of my own pocket to fund my investments.
Three years on many of those people in our investor’s club have sold their investments. Most of them said they preferred to use the extra money for other things, like holidays, or reducing credit card debt.
I still have my investments, and they’re chugging along quite nicely thank you.
Negative gearing has fallen out of fashion. Even the investment advisers aren’t pushing it as much. Read the magazines now and they talk about positive gearing.
What changed?
The change is partly due to reduced tax rates. Negative gearing is, and always has been, more use to you when you pay a higher tax rate. Even so, the trend was happening before tax rates reduced.
I think it has a lot to do with people realising it was not the panacea it was touted to be.
When you negatively gear, money still comes out of your pocket. You have to contribute to your investment. If you are stretched tightly as it is—mortgage, credit card, kids—then the money you take out to put into your investment could probably be better off spent paying off the credit card, or the kids’ school fees.
Not only that, after you have done a tax return or two you realise you don’t get 100% of that extra back, you only get a percentage of it.
For example, if your tax rate is 40%, is it better to get back 40% of $10,000 negatively geared, or is it better to pay the whole $10,000 off on your credit card?
There is one time that I would consider negatively gearing though. This scenario would include having money burning a hole in my pocket, being on a very high wage, and also have all my bases covered in other investment areas. I would negatively gear if I could see down the track, that I would end up in front over all and had the money to spare.
What do you think?
Should you use a real estate agent for an investment property?
November 16th, 2006Each person to their own, but if someone asked me the question, “Should you use a real estate agent for your investment property,” my answer would be, “Oh yes. Defintely yes. I have three investment properties and I wouldn’t do it any other way.”
“But what about the costs?” you ask. “The agent takes fees, which I could use to repay back the mortgage.”
True, but let me tell you, that 7.5% (our agents’ average), is the best 7.5% you ever spent.
Not only that, it’s tax deductible.
Why do I recommend using a real estate agent?
You don’t have to worry about the property. The agent does all that for you. If you have trouble with the tenant, the agent takes care of that. Property needs repairs—the agent is the first place the tenant calls. The agent will even inspect the property for you.
I know people who lease their own investment properties. I’ve done it myself in the past. It’s a pain. It’s a lot of work, and if anything goes wrong you have to fix it. If you have a problem tenant, you have to follow them up.
And like I said, the agent’s fees are fully tax deductible. For me, this is often the tips the scales between having to pay tax on my positively geared property, or getting a small tax benefit elsewhere.
So if you ask me, you know what my answer will be. “It’s the smartest thing you can do when investing in property.”
Tax and investment properties
November 11th, 2006So you want to buy an investment property, and want to know the best way to do it from a taxation point of view.
Here are some pointers.
A disclaimer first. Just because these work from a taxation point of view doesn’t mean they’re optimal. In fact, as you will see, sometimes they are the opposite. You must take other factors into consideration, particularly your own circumstances.
Don’t buy an investment property just for the tax benefits. It’s the wrong reason to invest.
Negative gearing
I’m not a big fan of negative gearing. It has its place, but the sleep factor is more important.
Negative gearing is paying more in repayments than you make from an investment. For example, if your investment propery repayments are $2,000 per month, but the tenant only pays $1,200, you are negatively geared to the tune of $800. You can claim some of that back (the interest portion) in tax.
It is more beneficial to those on a higher tax rate. The lower your tax rate, the less benefit you gain.
Timing of repairs
Conventional wisdom has you buy a house, do it up, and then lease it out.
While this will probably get you better tenants and a higher rental return, taxation-wise you are better to put tentants in immediately and paint the house twelve months later.
You cannot claim work you do preparing a property for rental. You can, however, claim repainting and repairs once the property has been let (a reasonable time).
Know the difference between repairs and maintenance
Repairs are tax deductible, replacement is not.
Repairing tiles on a leaking roof is tax deductible. Replacing those same tiles because the roof is getting old is not.
Travel to inspect property
It is reasonable to inspect your property twice a year, and you can claim travel to do this. If you visit it more frequently than this you must have a good reason.
Keep records of dates, costs and distance.
Remember that what works well from a tax point of view is not always best for you
Tax is a complex subject. The examples given here are simplified. They have to be. People write whole books about each of these subjects.
Remember, though, opting for the tax advantage is not always the best thing to do.
