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Negative gearing is a heavily debated topic throughout the property industry and is often in the headlines at election time. As one of the major drawcards to investing in property, investors must factor it into their ongoing strategy.

Before exploring the negative gearing and depreciation relationship, let’s cover the essentials first.

What is negative gearing?
An investment property is negatively geared when the return, or rental income, is less than the property’s expenses. This essentially means that the investment property is making a loss.

Just like any other property expense such as interest repayments and insurance, the loss from a negatively geared property is deducted from the investor’s income.

What is depreciation?

Property depreciation is the natural wear and tear of a building’s structure and assets. Property investors can claim this as a tax deduction each financial year. A bonus of depreciation is that it’s a non-cash deduction, so investors don’t need to spend any money to claim it.

Depreciation can be claimed under two categories. The first being capital works deductions on the structural component such as walls, windows and sinks. The second category is plant and equipment deductions on the easily removable assets like carpet, ceiling fans and hot water systems.

The two broad categories mean that investors can claim depreciation on almost anything.

Benefits of negatively geared property

Many investors hold on to their negatively geared investment properties. Some even enter the market with the aim of having a negatively geared property.

But we know negative gearing means they are making a loss, so why would they want to do this?

The answer can be complex and there are many factors to be considered as everyone’s financial situation is different. However, there are two key benefits of negative gearing.

The first is long-term capital gain. Many investors hold onto their properties as part of a long-term wealth creation strategy. Their aim is to sell it in later years at a profit as the property market fluctuates, or to use the property to fund their retirement.

The second benefit is the reduction to taxable income. Property is a tangible asset and if it’s making a loss, it reduces the investor’s taxable income and they pay less tax. This can prove to be beneficial in the short-term and early stages of growing a portfolio.

Depreciation and negative gearing

Given that depreciation is a non-cash deduction, it can turn a positively geared property into a negatively geared one, without making a further cash loss. Let’s see how this works.

In practice: Depreciation and negative gearing

Kim earns $80,000 a year and pays approximately $17,500 in tax.

Kim receives $25,000 in rental income. Her property’s tax deductible expenses include interest repayments, maintenance costs, insurance, council rates and property management fees that come to $22,000 for the financial year. Her property is positively geared with a $3,000 return.

By including depreciation, Kim can claim capital works and plant and equipment deductions totalling $6,000 for the financial year. This changes the previously positively geared property to be negatively geared, with a $3,000 loss.

Kim’s tax liability decreases to approximately $16,500 rather than increasing to approximately $18,500 when positively geared.

To learn more about depreciation, contact BMT on 1300 728 726 or Request a Quote.

 


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This tax advice blog will show you how to be your tax accountant’s best client and why this will always work in your favour.

Does your tax accountant love you or do you suspect they are reluctant to answer the phone when you call?

If you’re leaning towards the latter, you could be missing out on money and opportunities.

Take a look at this tax advice on how to make life easier for your accountant and why this will pay off for you.

Learn the lingo

In Australia, anybody can start a business, even if they have very little financial literacy.

While this tax advice blog isn’t telling you to rush out and get an accounting degree, it really doesn’t hurt to familiarise yourself with the ‘language’ of accounting and some of the terms you accountant uses.

This includes:

  • – Profit & Loss
  • – Balance Sheet
  • – Cash Flow
  • – Arrears
  • – BAS
  • – Equity
  • – Accounts receivable/accounts payable

When you understand what the common terms mean, your tax accountant will be able to explain what’s going on ‘under the hood’ of your business and you will find it easier to have clarity about where you stand financially.

From there, you can start working together to figure out ways to maximise revenue, minimise your tax bill and increase your profit margins.

Keep beautiful books

Nothing makes a tax accountant happier than an organised, fully reconciled cloud-based accounting system which has an itemised record of every dollar that has entered and left your business and what the purpose of it was.

If this is done, all your tax accountant needs to do is cross-reference with your bank statements and ask a few follow-up questions about anything that has fallen through the cracks. You won’t both need to spend hours figuring out where money has gone or come from.

Too busy to keep beautiful books? A bookkeeper can do this for you full-time or for a few hours per month. You can even outsource to someone offshore who will reconcile your accounts daily (just make sure you work with a reputable organisation and sign a contract to protect you from things going wrong).

If you want to do your own books, you will make it easier on yourself by learning to use a cloud-based accounting system. Most are reasonably priced and very user-friendly.

Read more: Tax time countdown: are you ready??

Separate your accounts

Another thing your accountant will thank you for is keeping your business and personal bank accounts separate.

Trawling through one account to do an annual tax return can be a nightmare. It’s stressful for you because you have to account for every single expense for the last 365 days. Some may not be marked in a way that makes it easy to remember whether they were for work or for yourself.

The best thing you can do is have separate accounts and a card for each. If you don’t want to add a credit card, attach a VISA debit or something similar to your business account. This will let you make credit-style payments without going into debt.

Tax accountants see business-only accounts and feel very happy! It makes them look forward to working with you and more likely to make your jobs a priority.

Be a friendly, helpful client

Everybody prefers to work with people they like. If you are responsive, organised and have a decent understanding of the ins and outs of taxes and accounting (tip: read a few tax advice blogs), you will start to become one of your accountant’s preferred clients.

What’s more, people like to do nice things for the people they like. Treat your accountant well and they will be motivated to give you tips, show you clever ways to minimise your tax bill, and offer advice to help you improve your business.

Even if your accounts are in a mess right now, if you can demonstrate that you’re willing to learn and improve, and you have a smile on your face, your accountant is more likely to go the extra mile for you.

Mobbs & Company are tax accountants with offices on the Sunshine Coast, in Brisbane and Caboolture. Contact us for a free initial appointment.


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Tax time is coming up again; are you ready? Find out how to be prepared for tax time in 2021 and about the benefits of using a specialist tax account.

The financial new year seems to roll around faster every year.

And just as we do on January 1st, every July 1st sees us resolving to be more organised and do better when it comes to our business and personal finance management.

With a few months until tax time in 2021, now is your chance to start organising so you can side-step the late-June/early July panic surrounding your tax return.

The best things about being organised are that you will be less stressed and have the clarity to claim every possible dollar. Here are some tips to get you started from a specialist tax accountant:

Talk to a tax specialist

Unless you are a trained accountant yourself (and have the time and effort to devote to dealing with the details of Australia’s ever-changing tax regulations), speaking to a professional is the way to go.

This year, change things up by calling them early.

Your tax accounting specialist will be able to give you a heads up ahead of time about what you should spend ahead of the end of the financial year so you can maximise your claim. For example, if you have been thinking for months about purchasing some new equipment, you may as well do it before EOFY so you can write it off as a business expense sooner. A specialist tax accountant can explain if this strategy will work for you.

Read more: How the government decides who to audit

Keep records

A shoebox of disorganised receipts will make you and your specialist tax accountant feel very stressed at tax time.

If you want to be really prepared for July 1st, spend some time each month, or even each week ensuring you have a record of your purchases. A receipt-keeping app is a great place to start, or you can connect your bank account to a cloud-based accounting system and have every purchase tracked automatically.

It may not feel like a big deal to spend $10 here and $200 there on business expenses on your personal card or without keeping a record, however, if you make this a habit it will all add up. And every $100 you don’t have evidence of will lead to a higher tax bill.

Put money aside all year

They say there’s nothing certain in life except death and taxes.

If you earn a living, unless it is less than around $19,000, you will have to give a percentage of your income to the Government.

The amount of tax you pay will change based on what you earn but as a rule of thumb, you should remember that $30 of every $100 you make doesn’t technically belong to you. Because of this, the best thing you can do is put this money aside as soon as you receive it.

Keep it in a separate account and don’t be tempted to dip into it. This way, come tax time, you won’t feel stressed about your tax bill. You may even be pleasantly surprised to find you have some cash leftover to either invest in your business or spend on yourself.

If you want to be really on top of your tax payments, ask your accountant to arrange quarterly tax payments. This will be based on your previous year’s income. Make a lump-sum payment every three months and you won’t be in as much danger of falling behind on your tax bill.

Get help

A specialist tax accountant shouldn’t be the only professional in your financial arsenal.

If you have been doing your own bookkeeping, i.e. paying your staff, paying supplies, sending invoices, and reconciling accounts, consider how much time this takes you and whether you could spend that time in a more productive way.

Nowadays there are plenty of independent bookkeepers who can bill you for just a few hours a week, depending on your needs. For a small price, you are free from the stress of sending invoice reminders, figuring out how much holiday pay your staff owe, and ensuring you aren’t behind on your own bills.

When you have a good bookkeeper, you will be far more organised and ready for tax time. They can work with your specialist tax accountant to make this EOFY your easiest ever.

Start early this year and you’ll thank yourself when your specialist tax accountant files your taxes without needing to ask you hours worth of questions.

Mobbs & Company are tax accountants with offices on the Sunshine Coast, in Brisbane and Caboolture. Contact us for a free initial appointment.


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Tax accountant services in Brisbane are there for you should you get audited. But how does the ATO decide who to audit? Read on to learn more.

If you find yourself or your business slapped with an audit you will probably be in dire need of tax accountant services. Every Brisbane business and individual is susceptible to being audited but there are ways to avoid being targeted by the ATO.

To be audited means an outside organisation such as the ATO will come in and review all your accounting ‘books’. They will be looking for detailed evidence of income and expenses. Often an audit will take place because the ATO suspects you are doing something wrong.

As shared by the ATO: “Our audit program ranges from relatively quick examinations of source documents to more intensive analysis of complex arrangements and transactions. Whatever the issue, we will be transparent about our concerns.”

The ATO provides much more detailed information on the website that is well worth perusing for.

If you have everything organised and above board, an audit should not have any negative outcomes but it will still be stressful and time-consuming. If you haven’t been above board, you may find yourself and your business in hot water.

Read more: Tax time isn’t final

How to avoid an audit: Do the right thing

If you want to avoid being audited, any tax accountant service in Brisbane or elsewhere will tell you the first thing to do is avoiding trying to cheat the system.

These days, the ATO has automated checks and balances. Anything which registers as out of balance increases your chances of being audited exponentially.

Things like claiming excessive laundry expenses or and declaring an income that is tens of thousands of dollars below the average for your industry fall into this category. These figures will set alarms off at the ATO and have the auditors heading to your door.

As it happens, avoiding an audit isn’t even the only reason you should be honest in declaring your income. If you want income protection (and these days you really do) your insurer will cater your policy to your tax declaration. This means you won’t be able to insure for what your company is actually worth. For the sake of trying to play the system, you may find yourself considerably out of pocket if the dark times come.

The same hens will come home to roost if you need to apply for a loan. The lender will value your company and assets by your tax declaration. This is shooting yourself in the foot when you need a loan and have to borrow far less than you should be able to.

The bottom line

At the end of the day, you may be audited no matter what you do but it is far more likely the auditor will knock on your door if you have glaring discrepancies.

Even the most honest business owner can make mistakes and find themselves in hot water. The best way to avoid this altogether is to use top-notch tax accountant services. Your accountant will make sure your tax return is accurate and lodged in a way that doesn’t raise alarm bells at the ATO. This includes not exceeding the limits of what you can declare as expenses and ensuring the income you declare matches what your bank accounts say.

Use a good tax accountant service to keep your ducks in a row and an audit should never be a problem. If you do get audited, you may like to check out some in-depth tips at knowthelaw.com.au and make sure to get in touch with the friendly staff at Mobbs & Company to help you showcase your financial records correctly.

Mobbs & Company are tax accountants with offices on the Sunshine Coast, in Brisbane and Caboolture. Contact us for a free initial appointment.