Redrawing investment loans

The ATO estimates that incorrect reporting of rental property income and expenses is costing around $1 billion each year in forgone tax revenue. A big part of the problem is how taxpayers are claiming interest on their investment property loans.

 

There is an uptake in ATO activity focusing on refinanced or redrawn loans. This activity is a result of a major data matching program of residential property loan data from financial institutions from 2021-22 to 2025-26. This data is being matched to what taxpayers have claimed on their tax returns. Those with anomalies can expect contact from the ATO to explain the discrepancy.

 

If you have an investment property loan and redraw on the loan for a different purpose to the original borrowing, the loan account becomes a mixed purpose account. Interest accruing on mixed purpose accounts need to be apportioned between each of the different purposes the money was used for.

 

On the other hand, if the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible.

 

For example, if you have redrawn on the loan to pay for a private holiday, or pay down personal debt, then the interest relating to this portion of the loan balance is not deductible. Not only will the interest expenses need to be apportioned into deductible and non-deductible parts, but repayments will normally need to be apportioned too.

 

Withdrawals from an offset account are treated as savings rather than a new borrowing. If you have a loan account and an interest offset account is attached to this account that reduces the interest payable on the loan, withdrawing funds from the offset account will typically increase the amount of interest accruing on the loan, but won’t change the deductible percentage of the interest expenses. That is, when you withdraw funds from the offset account this is really a withdrawal of savings and won’t impact on the extent to which interest accruing on the loan account is deductible.

 

If you have a home loan that was used to acquire your private home and you have funds sitting in an offset account, withdrawing those funds to pay the deposit on a rental property won’t enable you to claim any of the interest accruing on the home loan. However, if you redraw funds from the home loan to acquire a rental property then interest accruing on this portion of the loan should be deductible. The tax treatment always depends on how the arrangement is structured.

Do you need to register for WA Payroll Tax?

Business owners can be so occupied with running their business and hiring staff and most often miss out important thresholds that they need to be aware of.

In the past we have seen businesses missing the threshold to register for WA Payroll Tax simply because they do not realise that it is their responsibility as an employer to ensure they register, lodge and pay Payroll Tax on time.

In recent years WA Payroll Tax has become more complicated as there were several changes made to various thresholds and tiers as well as the tax rates.

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Small Business Grants WA

To assist small businesses with the ongoing impact of COVID-19, the WA state government has released a series of business grants since the pandemic started.

Currently the following grants are available for WA businesses:

–          Small Business Hardship Grants (December 2021 and extended program)
–          Payroll tax waiver
–          Tenant Rent Relief Scheme
–          Landlord Rent Relief Incentive
–          Tenant Rental Credit Scheme (State Government tenants)

For the hospitality and events industry, the following grants are available:

–          Alfresco support package
–          Waiver of Liquor Licensing fees
–          Event Supplier Support Program

Different eligibility criteria applies to each grant so check the website for details.  If you need assistance applying for the grant please contact us.

Important note: the grants received will likely taxable income to the business so please make sure it is declared in the business’s tax return in the year of receipt.

End of financial year checklist for businesses

What can businesses do before 30 June to prepare for the end of financial year as well as legally reduce tax liability for 2022 financial year?

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Super Guarantee to apply to more employees

Do you know that from 1 July 2022 onwards super guarantee will apply to employees earning less then $450 per calendar month, provided that they satisfy other eligibility requirements?

This applies to the following (not an exhaustive list):
– under 18 employees,
– contractors,
– full time, part time or casual staff,
– someone receiving a super pension or annuity while working (this includes employees on transition to retirement
– a temporary resident, such as a backpacker
– a company director
– a family member working in your business

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