The ATO is aware that residential rental property owners may be concerned about how COVID-19, floods, or bushfires have reduced their income. This may be a result of tenants paying less or entering deferred payment plans, or travel restrictions which have affected demand for short-term rental properties. New legislation also affects the tax deductions that owners of vacant land can claim.
As always, the ATO emphasises the importance of keeping proper records.
The COVID-19 pandemic has placed property owners and tenants in unforeseen circumstances. Many tenants are paying reduced rent or have ceased paying because their income has been adversely affected by COVID-19.
You should include rent as income at the time it is paid, so you only need to declare the rent you have received as income. If payments by your tenants are deferred until the next financial year you do not need to include these payments until you receive them.
While rental income may be reduced, owners will continue to incur normal expenses on their rental property and will still be able to claim these expenses in their tax return as long as the reduced rent charged is determined at arms’ length, having regard to the current market conditions.
This applies whether the reduction in rent was initiated by the tenants or the owner.
Some owners may have rental insurance that covers a loss of income. It is important to remember that any payouts from these types of policies are assessable income and must be included in tax returns.
Many banks have moved to defer loan repayments for stressed mortgagees. In these circumstances, rental property owners are still able to claim interest being charged on the loan as a deduction- even if the bank defers the repayments.
In circumstances where COVID-19 or natural disasters have adversely affected demand, including the cancellation of existing bookings for a short-term rental property, deductions are still available provided the property was still genuinely available for rent.
If owners decided to use the property for private purposes, offered the property to family or friends for free, offered the property to others in need or stopped renting the property out they cannot claim deductions in respect of those periods.
In the event your plans to rent a property in 2020 were the same as those for 2019, but were disrupted by COVID-19 or bushfires, you will still be able to claim the same proportion of expenses you would have been entitled to claim previously.
To determine the proportion of expenses that can be claimed for short-term rental properties impacted by COVID-19 or bushfires, a reasonable approach is to apportion expenses based on the previous year’s usage pattern, unless you can show it was genuinely available for rent for a longer period of time in 2020.
If you or your family or friends move into the property to live in it because of COVID-19 or bushfires, you need to count this as private use when working out your claims in 2020.
For the 2020 year, expenses for holding vacant land are no longer deductible for individuals intending to build a rental property on that land but the property is not yet built. This also applies to land for which you may have been claiming expenses in previous years.
However, this does not apply to land that is used in a business, or if there has been an exceptional circumstance like a fire or flood leading to the land being vacant.
So, if you are building a rental property, you cannot claim the deductions for the costs of holding the land, such as interest. However, if your rental property was destroyed in the bushfires and you are currently rebuilding, you can claim the costs of holding your now vacant land for up to 3 years whilst you rebuild your rental property.
Travel to rental properties
Residential property owners cannot claim any deductions for costs incurred in travelling to residential rental property unless they are in the rare situation of being in the business of letting rental properties.
Incorrectly claiming loan interest
Taxpayers that take out a loan to purchase a rental property can claim interest (or a portion of the interest) as a tax deduction. However, directing some of the loan money to personal use, such as paying for living expenses, buying a boat, or going on a holiday is not deductible use. The ATO uses data and analytics look closely to ensure that deductions are only claimed on the portion of the loan that relates directly to the rental property.
Capital works and repairs
Each year, some taxpayers claim capital works as a lump sum rather than spreading the cost over a number of years. Others claim the initial work needed to get a property ready for rent immediately instead of spreading the cost over a number of years.
Repairs or maintenance to restore something that is broken, damaged or deteriorating in a property you already rent out are deductible immediately. Improvements or renovations are categorised as capital works and are deductible over a number of years.
Initial repairs for damage that existed when the property was purchased cannot be claimed as an immediate deduction but may be claimed over a number of years as a capital works deduction.
Short term rentals
The ATO sometimes detect people with short term rental properties claiming for 100% of their expenses when they actually use the property for their own use or provide it to family and friends for free or at a reduced rate. Properties need to be rented out or be genuinely available for rent to claim a deduction.
Factors such as reserving the property or leaving it vacant over peak periods, not charging the market rate and the types of terms and conditions of the bookings are all taken into consideration when deciding if active and genuine efforts are being made to ensure a property is available for rent.
If a property is not genuinely available for rent, you need to limit your deductions to the days when it is.
If you are allowing friends or family to stay in the property at a reduced price, you need to limit your deductions to the amount of rent received for these periods.
Do not forget to include all your rental income, especially from sharing economy platforms. The ATO is matching data received from these providers to information in tax returns and will be following up discrepancies.
Poor record keeping
The number one cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim. Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.
The ATO has confirmed that for fringe benefits tax (FBT) purposes, the taxi travel exemption has been extended to include ride-sourcing vehicles. The change is because of amendments to the Fringe Benefits Tax Assessment Act 1986, which are now law.
Before the amendment became law, a taxi was defined for FBT purposes as ‘a motor vehicle licenced to operate as a taxi’. This meant the FBT exemption did not extend to ride-sourcing services provided in vehicles that were not licensed to operate as a taxi.
Employers will now be eligible for the exemption for travel provided to their employees if it’s a single trip to or from the employee’s workplace:
- on or after 1 April 2019
- in a licenced taxi or other vehicle involving the transport of passengers for a fare – other than a limousine – such as a ride-sourcing vehicle.
Travel by an employee in such a vehicle on or after 1 April 2019 is also exempt if it’s as the result of sickness of, or injury to, the employee, and whole or part of the journey is directly between:
- the employee’s place of work
- the employee’s place of residence
- any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury.
The change means any benefit arising from travel by an employee using a registered taxi or ride-sourcing provider (other than in a limousine) is now exempt from FBT subject to meeting certain criteria.
The change is designed to help minimise compliance costs for businesses providing transport for their employees.
Because the changes apply from 1 April 2019, the 2020 FBT return instructions have been updated to help employers who may need to amend their FBT return
Every year the ATO adjusts GST and pay as you go (PAYG) instalment amounts using a formula known as the gross domestic product (GDP) adjustment. This is based on data published by the Australian Bureau of Statistics.
On 19 June 2020, royal assent was received to suspend indexation for GST and PAYG instalments for the 2020–21 income year in response to COVID-19. This means from 1 July 2020, there will be no GDP adjustment used to work out quarterly GST and PAYG instalment amounts for the 2020-21 income year.
PAYG instalment variations for the 2019–20 income year do not carry over to the new income year. You will need to vary your instalments again for the 2020–21 income year if your instalment amounts will result in them paying too much tax for the year. The ATO are reviewing their approach for penalties and interest charges made to variations due to COVID-19. GST instalments can continue to be varied on your quarterly activity statement.
Families receiving the Child Care Subsidy (CCS) will now have until 31 March 2021 to submit their 2018-19 tax return for CCS purposes.
Families will still be required to submit tax documents in accordance with the usual timeframes.
Minister for Education Dan Tehan said the new deadline would ensure that families who had not submitted their 2018-19 tax return could continue to access subsidised care from 13 July 2020.
“Our Government has given families an extension to continue receiving the CCS while they submit their 2018-19 tax return paperwork by 31 March 2021,” Mr Tehan said.
“From 13 July 2020, the CCS will resume operation and eligible families will be expected to make a contribution towards the cost of childcare. This one-off extension means that families will continue to have access to the CCS and not be required to pay full fees, ensuring that parents can continue to access affordable care.
Under the CCS legislation, if a family does not lodge their 2018-19 tax return by 31 March 2021, or advise Services Australia (Centrelink) that they are not required to lodge, they will lose their entitlement to the CCS and will be required to pay full child care fees. Once families lodge their 2018-19 tax return, entitlement to the CCS can recommence.
Families are encouraged to lodge their 2018-19 tax return as soon as possible, noting the extension is for CCS purposes only, and delaying lodgement of the return could affect other benefits, such as Family Tax Benefit. Families should check the ATO website to understand the consequences for non-lodgement of tax returns by the required due date.
Foreign or Australian tourists travelling from Australia are considered to be exporting if they take goods out of Australia as accompanied luggage, which means the goods are:
- carried or worn by the traveller
- checked into the hold of the aircraft or ship that the traveller is using.
Conditions for such supplies are included in either the GST-free sealed bag system or the tourist refund scheme.
If a traveller brings goods back into Australia for which they have made a claim for a GST refund under the Tourist Refund Scheme and the value of those goods (combined with any other overseas purchase) exceeds AUD $900, they must be declared to Australian Customs and Border Protection Services and the GST refund will have to be repaid. GST is payable on the entire value of the item, not just the amount that is over the AUD $900 limit. Penalties may apply to undeclared taxable goods.
Residents of Australia’s external territories can claim refunds of GST and wine equalisation tax (WET) where applicable under the tourist refund scheme for unaccompanied goods exported from Australia back to their home territory.
Post COVID-19 some of us may be able to travel overseas. It should be noted that most O.E.C.D nations have similar refund schemes. So, if at all possible, take advantage of GST refunds overseas.
The ATO will take action against individuals exploiting the federal government’s COVID-19 financial hardship early release super scheme.
The ATO administers the program and says it will pursue those who apply for early super release when they are ineligible.
It intends to take action against people who exploit the scheme for the purpose of gaining a tax advantage. This is known as the “re-contribution strategy”.
The ATO matches records of applicants’ income and other data to check if they meet required financial hardship conditions to access the program.
Under the scheme, those who have had their income reduced by at least 20 per cent have until September 24 to access up to $10,000 from their super.
This is in addition to the first phase of the scheme, when up to $10,000 was accessible until June 30, 2020. No more than $20,000 can be accessed in total.
The ATO collects real-time data on how much workers are paid, with employers required to report income to the ATO each time an employee is paid under the Single Touch Payroll system which include information such as salaries and wages, pay-as-you-go tax withholding and superannuation.
The ATO is also able to access other information from an applicant’s super fund or from government agencies.
Although applicants for early-release super do not need to attach evidence of financial hardship to support their claims, they need to be able to show evidence of eligibility if requested to do so. This includes communications and rosters with employers as well as bank statements.
While superannuation withdraws under the scheme are tax free. However, in the event an applicant is later found to be ineligible, the cash will also be treated as assessable income on which tax will have to be paid.
On 30.6.20, the Morrison Government improved the flexibility of the superannuation system for older Australians, ensuring that more Australians can make voluntary contributions to their superannuation when they are in a position to do so.
Regulations are now in force so that from July 1 people aged 65 and 66 can make voluntary concessional and non-concessional contributions without meeting the work test, and to allow people up to age 75 to receive spouse contributions.
These changes were announced as part of the 2019-2020 Budget, as part of the Superannuation — improving flexibility for older Australians measure.
Another change in this package – to allow people aged 65 and 66 to make up to three years of non-concessional contributions under the bring-forward rule – is currently before the Parliament in the Treasury Laws Amendment (More Flexibility Superannuation) Bill 2020.
As the 2020-2021 financial year begins, incorporated small and family businesses with a turnover of less than $50 million will see their company tax rate reduced from 27.5% to 26%.
Unincorporated businesses will also benefit as the rate of the small business income tax offset increases from 8% to 13%.
On 30.6.2020, the Morrison Government announced revised start dates for a number of technical superannuation and taxation measures to provide clarity and certainty for taxpayers and superannuation fund managers.
These revisions are a result of the reprioritisation of Government resources and the shortened parliamentary sitting period in 2020 due to the COVID-19 crisis.
|MEASURE||REVISED START DATE|
|Superannuation — increasing the maximum number of allowable members in self-managed superannuation funds and small APRA funds from four to six||Start date revised from 1 July 2019 to Royal Assent of the enabling legislation.|
|Tax Integrity – removing the capital gains discount at the trust level for Managed Investment Trusts and Attribution MITs||Start date revised from 1 July 2020 to the income years commencing on or after three months after the date of Royal Assent of the enabling legislation.|
|Petroleum Resource Rent Tax — changing the PRRT settings to get a fair return (compliance and administration changes)||Start date revised from 1 July 2019 to the income year commencing on or after three months after the date of Royal Assent of the enabling legislation.|
|Ten Year Enterprise Tax Plan — targeted amendments to Division 7A||Start date revised from 1 July 2020 to income years commencing on or after the date of Royal Assent of the enabling legislation.|
|Superannuation — reducing red tape for superannuation funds (exempt current pension income changes)||Start date revised from 1 July 2020 to 1 July 2021|
The Government is committed to legislating to implement each of these measures and will continue to progress them for delivery as soon as possible.
A business that employs 20 or more employees had until 14 July 2020 to make a finalisation declaration for its employees’ end of financial year payroll information through Single Touch Payroll (STP)- enabled payroll systems.
Employers with 19 or fewer employers had to finalise this by 31 July 2020. Employee information that is reported and finalised through STP means there is no requirement to provide 2020 payment summaries to employees or to lodge a payment summary annual report with the ATO.
The sooner this is attended to, the better for all concerned.
The amount of the Commonwealth penalty unit has been adjusted for the Consumer Price Index (CPI) and increased from $210 to $222 from 1.7.2020. Penalty units are used to work out the amount of penalties for various tax offences including making false statements and failing to lodge documents on time.
Holman v Commissioner of Taxation  AATA 1375 it was held that a taxpayer and his wife did not carry on a retail outlet business as a partnership for income tax purposes. It found that even though the taxpayer was assisting his spouse in running a business which was solely registered in the spouse’s name, this could constitute a partnership. Due to a lack of evidence to demonstrate a partnership was carried on, including the extent of the taxpayer’s capital contributions, the AAT was not satisfied, on the balance of probabilities, that a partnership existed.
Hiremani v Commissioner of Taxation (Taxation)  AATA 1653 has held that an employee providing IT services working from home and his employer’s work office, was not entitled to a deduction for travelling expenses which related to travel from his home to his work office. The AAT found that the expenses lacked sufficient connection with the gaining or production of the taxpayer’s assessable income as they were essentially travel between home and the office.
Unsurprisingly, the AAT did not accept that the transportation of three laptops was an incident of the performance of the taxpayer’s duties.
The taxpayer’s deduction claimed for self-education expenses in relation to a project management course were allowed as the relevant course was designed to increase the taxpayer’s professional proficiency being advantageous to his existing employment and was provided by a place of education that satisfied the requirements in s82A of the ITAA 1936.
McAteer and Commissioner of Taxation (Taxation)  AATA 1795 in this AAT case it was found that a taxpayer who was required by his employment contract to be capable of working from home when rostered on duty after hours. was entitled to a deduction of a proportion of the occupancy expenses referable to the study/lab. Found that the taxpayer was also entitled to a deduction for depreciation on two iPads over the effective life of these depreciating assets. This was not the outright deduction initially claimed as their cost was over $300. The AAT held that it was not a mere convenience that the taxpayer work at home when he was rostered on call. Relevant to this finding was the fact that significant equipment was supplied for use at home in the employer’s business.
The rate at which work related car expense deductions may be calculated using the cents per kilometre method for the income year commencing 1 July 2020 is now 72 cents per kilometre.
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