The value of an ITWV (weekly tax variation)
Investors who gear their property to gain maximum income tax benefits and who are subject to normal withholding tax from their weekly pay attract substantial tax savings and refunds. A refund for a single property can be as much as $14000 per year or more. Without a weekly tax variation in place, or Income Tax Withholding Variation (ITWV), these funds are held by the tax office until the annual tax return is lodged.
The ITWV, previously known as a Section 221YD variation, is an annual application made to the ATO to vary the amount of tax withheld from an investor’s salary each pay period by their employer. The variation is valid for the whole of the financial year (1 July to 30 June next). If lodged part way through the year it also takes into account the amount of tax withheld from an investor’s salary to date of application, offering additional relief for the remainder of the year. Once an ITWV is processed, the ATO will notify the employer of a "varied" amount of tax to be withheld from the pay each pay period.
It simply means that a taxpayer entitled to a large refund at the end of the year can access that refund up front in their regular pay rather than waiting until their annual tax return is completed and lodged. Releasing the funds each pay period can help meet the regular costs of the investment like loan payments, rates, body corporate fees etc. It can also relieve potential cash flow restrictions for investors planning to expand their property portfolio.
My Tax Zone, registered accountants/tax agents and 100% Australian owned and operated, is the first accountant in Australia to offer the ITWV service online. Regardless of their location, property investors can go online now to have their ITWV applications processed by our team of qualified and experienced accountants. Our ITWV applications are prepared, lodged and stored electronically. It’s easy, convenient and environmentally sustainable - no appointments necessary, exclusive access to accountant’s support and help the environment by reducing the amount of paper usage.
For more information on this topic please visit our web site here ITWV.
Investors can also access our free Commentary titled ‘Taxation and Investment Properties Explained’. You will find additional tax tips relating to investment properties.
By D Maynard
CEO My Tax Zone
03 June 2008
Renovating Rentals: Repairs & Inprovements
Repairs & Improvements: FAQ's
The following is an exerpt of the ATO's view.
"The property was a great price.
You did the calculations, and it had all the hallmarks of a good rental investment. Plus it has a great long-term tenant.
All it needs is a few repairs and a couple of improvements, and the return will exceed your expectations – and that’s without taking into account the tax deductions you can claim for ‘repairs’.
So what is a deductible repair? Isn’t updating a worn-out kitchen or replacing the threadbare carpet a deductible ‘repair’ to the property? After all, you want to keep your tenant happy.
To make sure you get the best from your investment you need to know how the Tax Office defines deductible repairs before you start ripping up the carpet and pulling out the kitchen cupboards.
A repair is usually occasional and partial. Repairs typically replace a part of something or restore something to its original working order.
If you need to replace something entirely, like a complete set of kitchen cupboards, this suggests that it is not a repair. This is often a capital expense that is not immediately deductible, but which may have a deduction spread over more than one year, such as a decline in value deduction over the life of the asset, or a capital works deduction spread over 40 years.
However, a repair can include the rectification of damage or ageing to a part of a rental property, to restore that part to its former functionality. For example, a repair includes the fixing a window that has been broken, or restoring an air conditioning unit to proper functioning where parts have worn out or deteriorated and have to be replaced.
While a repair simply restores something to its original state, an improvement makes something better than it was originally. It can involve bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do e.g. remodelling kitchens or bathrooms, or extending the size of a house.
Some activities which are often mistaken for deductible repairs include:
a insulating a property
a repainting a house that had defective paintwork at the time it was acquired
a replacement of an entire structure or unit of property, like a complete fence or shed, a stove, or worn out kitchen cupboards.
Example:
William purchases a house that was ostensibly in good repair. To make it more attractive to prospective tenants, minor repairs and renovations are undertaken. The minor repairs and renovations are not deductible as repairs. During the course of these repairs and renovations, William discovers that the woodwork is seriously affected by the ravages of white ants. The expenditure incurred in these circumstances to fix the white ant problem existing at the date of purchase is also of a capital nature. Two years after purchase, William decides the wooden floor needs repairing. The options are either to repair the old floor or to replace it with an entirely new one of steel and concrete. William decides to adopt the second option because it will save future repairs and because it has distinct advantages over the old wooden floor. By choosing the second option, William cannot claim a deduction for a repair as he could had he simply repaired the wooden floor. It is an improvement."
For more information on taxation and investment property calculators visit our site here:
Rental Property Repairs.
By D Maynard
CEO My Tax Zone
The following is an exerpt of the ATO's view.
"The property was a great price.
You did the calculations, and it had all the hallmarks of a good rental investment. Plus it has a great long-term tenant.
All it needs is a few repairs and a couple of improvements, and the return will exceed your expectations – and that’s without taking into account the tax deductions you can claim for ‘repairs’.
So what is a deductible repair? Isn’t updating a worn-out kitchen or replacing the threadbare carpet a deductible ‘repair’ to the property? After all, you want to keep your tenant happy.
To make sure you get the best from your investment you need to know how the Tax Office defines deductible repairs before you start ripping up the carpet and pulling out the kitchen cupboards.
A repair is usually occasional and partial. Repairs typically replace a part of something or restore something to its original working order.
If you need to replace something entirely, like a complete set of kitchen cupboards, this suggests that it is not a repair. This is often a capital expense that is not immediately deductible, but which may have a deduction spread over more than one year, such as a decline in value deduction over the life of the asset, or a capital works deduction spread over 40 years.
However, a repair can include the rectification of damage or ageing to a part of a rental property, to restore that part to its former functionality. For example, a repair includes the fixing a window that has been broken, or restoring an air conditioning unit to proper functioning where parts have worn out or deteriorated and have to be replaced.
While a repair simply restores something to its original state, an improvement makes something better than it was originally. It can involve bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do e.g. remodelling kitchens or bathrooms, or extending the size of a house.
Some activities which are often mistaken for deductible repairs include:
a insulating a property
a repainting a house that had defective paintwork at the time it was acquired
a replacement of an entire structure or unit of property, like a complete fence or shed, a stove, or worn out kitchen cupboards.
Example:
William purchases a house that was ostensibly in good repair. To make it more attractive to prospective tenants, minor repairs and renovations are undertaken. The minor repairs and renovations are not deductible as repairs. During the course of these repairs and renovations, William discovers that the woodwork is seriously affected by the ravages of white ants. The expenditure incurred in these circumstances to fix the white ant problem existing at the date of purchase is also of a capital nature. Two years after purchase, William decides the wooden floor needs repairing. The options are either to repair the old floor or to replace it with an entirely new one of steel and concrete. William decides to adopt the second option because it will save future repairs and because it has distinct advantages over the old wooden floor. By choosing the second option, William cannot claim a deduction for a repair as he could had he simply repaired the wooden floor. It is an improvement."
For more information on taxation and investment property calculators visit our site here:
Rental Property Repairs.
By D Maynard
CEO My Tax Zone
Deductibility of Interest - Construction period
Good news for property investors:
There has been a quantum shift in the view of deductibility of interest expense during the construction period of an investment property construction project. The shift from the ATO’s traditional view to the current position is good news for property investors.
Typical scenario >>> Investor purchases land, constructs a dwelling and, on completion of construction, rents the property for the market rate.
The traditional view in this scenario was interest (and borrowing costs) was not deductible as there was no connection between income until the property became available for rent. In other words, the interest expense was incurred too early to be deductible. Instead, the interest expense was treated as a capital cost which formed part of the cost base of the project for Capital Gains Tax (CGT) purposes and tax deductibility against other income was either lost or deferred.
A recent court case and subsequent Australian Taxation office (ATO) rulings and interpretive decisions has changed that view. The current view in this scenario is that interest is deductible, providing certain circumstances apply.
Providing property investors meet those circumstances interest expenses incurred on borrowings used for the construction of a rental property should be deductible from the outset of the loan.
For more details you can access our full commentary here "Taxation and investment Properties Explained". It's FREE.
By D Maynard
CEO My Tax Zone
There has been a quantum shift in the view of deductibility of interest expense during the construction period of an investment property construction project. The shift from the ATO’s traditional view to the current position is good news for property investors.
Typical scenario >>> Investor purchases land, constructs a dwelling and, on completion of construction, rents the property for the market rate.
The traditional view in this scenario was interest (and borrowing costs) was not deductible as there was no connection between income until the property became available for rent. In other words, the interest expense was incurred too early to be deductible. Instead, the interest expense was treated as a capital cost which formed part of the cost base of the project for Capital Gains Tax (CGT) purposes and tax deductibility against other income was either lost or deferred.
A recent court case and subsequent Australian Taxation office (ATO) rulings and interpretive decisions has changed that view. The current view in this scenario is that interest is deductible, providing certain circumstances apply.
Providing property investors meet those circumstances interest expenses incurred on borrowings used for the construction of a rental property should be deductible from the outset of the loan.
For more details you can access our full commentary here "Taxation and investment Properties Explained". It's FREE.
By D Maynard
CEO My Tax Zone
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