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* Personal income tax measures

1.1 Limiting plant and equipment depreciation deductions to outlays actually incurred by investors – for residential investment properties acquired from Budget night on 9 May 2017

From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential properties. Plant and equipment items are usually mechanical fixtures, or those that can be ‘easily’ removed from a property such as dishwashers and ceiling fans. These changes will apply on a prospective basis, with existing investments grandfathered. More specifically:

• Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

• Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.

This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value

1.2 No deduction for travel expenses for residential rental properties

From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

This is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. This measure will not prevent investors from claiming a deduction for costs incurred in engaging third parties, such as real estate agents, for property management services.


 

What is tax planning

Tax Planning is where the taxpayer very sensibly changes around or re-arranges their affairs so that their business and financial involvements will result in increased profitability (their primary objective) and minimise tax payable (their secondary but just as important objective). In professional language, Tax Planning is - "the process of organising a taxpayer’s affairs so that as far as possible legally or commercially, the liability of the taxpayer to income tax (or any other taxes for that matter) is minimised". This type of tax planning is loosely referred to today as tax avoidance. A better term is Tax Minimisation or even better - Tax Saving Planning.

What is tax saving planning?

Tax saving is an exercise which can provide many hours of enjoyment, believe it or not. It can be a stimulating occupation and where successful a profitable one. However, we stress again that avoidance is really the only game to play. Whatever arrangement you investigate; ensure that you remain within the area of avoidance. The line between avoidance and evasion can be thin.

Tax Saving is best if it is both legally right and morally right. Taxpayers have successfully implemented some avenues mentioned here. Others are worthy of consideration and may be acceptable if structured in the right manner. Examine each one and see if it is applicable to your situation.

There are in fact countless situations that you can utilise in minimising taxation legally. You are limited only by your imagination.

The purpose of planning

The purpose of this section is not to explore how we can all evade taxation. The sole purpose is to emphasis the importance of good tax planning. But what do we mean? Tax planning is the sensible re-ordering of your affairs so that your business and financial involvements are undertaken with profitability as the primary aim. Minimising your tax bill within the framework of the law is the secondary (but just as important) objective. Tax planning means striving to reduce tax, right? Wrong! The aim of good tax planning is not to reduce taxes but to maximise your "after tax" income. Think about it for a while. You may find that often it is better strategy to pay extra tax now in order to wind up with more "after tax" income at a later date. Whether we like it or not, the government will always be our "silent partner". The idea of tax planning then is to ensure that your silent partner does not draw more than they are entitled to. Just like any other business operation the share of profits must be fair and just and as dictated by the partnership agreement. In this case the agreement is the Tax Act and unfortunately we have little say in it.

 


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