The idea of adding a granny flat to your property sounds like a great idea. A property to rent out to generate some welcome extra income, or a home for adult children or mum and dad in their later years.

But there are important tax and personal considerations to consider before taking the plunge and digging up the backyard. Although the Federal Budget proposed significant reform in this area (which we cover later in this article), important tax questions remain.

Tax and Granny Flats: What You Need To Know

A granny flat is usually a self-contained secondary dwelling with a separate entrance, bathroom, kitchen and living space.

Unlike an investment property, granny flats do not have a separate title and are built within the boundary of your existing property or attached to your home. A granny flat cannot be sold separately unless you subdivide the existing property title.

Before you rush off to start building, you need to carefully consider the tax implications and get professional advice, or you could find yourself facing significant tax bills.

For example, if you rent out your granny flat at commercial rates to a third party like a student, the rent will be assessable income and you will pay income tax on it at your marginal tax rate. You are, however, entitled to claim the normal deductions for depreciation against income from an investment property.

Subdividing the property could also create a GST obligation, as the flat may be deemed a new residential property.

Granny Flats and Capital Gains

Under current legislation, the main tax issue when adding a granny flat is that it can create a capital gains tax (CGT) headache when it comes time to sell your home. CGT is payable on the difference in value between the time you bought the property and the time you sell.

Normally, your main residence is exempt from CGT, but adding a granny flat can affect this. If you charge rent to a student living in your granny flat for example, you will lose some of your main residence exemption from CGT as the property is partly being used for income-producing purposes.

When a family member lives in a granny flat and does not pay commercial rent, generally the main residence exemption still applies as the arrangement is deemed private or domestic.

CGT and Cash Contributions

Things get more complicated if a relative provides a cash sum to help pay for the cost of building a granny flat in return for a right of occupancy for life or life interest.

Under current tax laws, a cash sum paid by one party to build a granny flat is a CGT event. This means if your parent makes a financial contribution towards you building a flat to live in on your property, you will have a partial CGT liability to pay when you eventually sell your home.

To make things worse, the normal 50 per cent discount on CGT for the disposal of an asset held for over 12 months may not be available.

Potential For Elder Abuse

In many cases, concern about paying CGT means families fail to put formal agreements in place when a relative contributes to the cost of a granny flat. This leaves the family member with no protection if the relationship breaks down and creates the potential for financial abuse.

The family member can also lose out financially if they need to move into an aged care facility, or if the homeowner needs to sell.

It’s also worth noting that an interest in a granny flat can affect social security entitlements and aged care fees.

Proposed Federal Budget Exemption

To solve some of these issues, the October 2020 Federal Budget included a proposed CGT exemption for granny flats where a formal written agreement is in place. The new measure will be limited to arrangements covering family relationships and disabled children – not commercial rentals.

Eligibility conditions for the new CGT exemption will depend on the legislation eventually being passed by Parliament. If passed, a start date is expected as early as 1 July 2021.

If you are considering building a granny flat on your property, contact us today to discuss the potential tax implications.

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On 15^th September 2020, the Treasurer announced the following changes to the JobKeeper Scheme:

• The Jobkeeper scheme will be extended beyond the former set end date of 27^th September 2020;
• The Jobkeeper 2.0 scheme will be a two-tiered payment scheme;
• The eligibility for the two payment tiers will be based on the number of hours worked during the relevant reference period; and
• There will be a requirement to re-test a business’ eligibility each quarter, based on the new ‘Actual decline in turnover test’.

EXTENSION TO THE JOBKEEPER SCHEME

It has been announced that there will be two extensions to the JobKeeper Scheme’s deadline, which was originally set to end on Sunday 27^th September 2020.

The dates of these extensions can be seen below:

• Extension 1: Monday 28^th September 2020 – Sunday 3^rd January 2021
• Extension 2: Monday 4^th January 2021 – Sunday 28^th March 2021

PAYMENT RATES

From 28^th September 2020, the Jobkeeper payment rate will be divided into two tiered rates:

• Tier 1 Rates – This is the higher rate; and
• Tier 2 Rates – This is the lower rate.

Both payment rates however will reduce in line with the two extensions. This can be seen below:

The tiered payment system will apply to each employee based on their total number of hours worked during the applicable ‘reference period’.

The reference period for an individual can be determined using the information below:

• Eligible Employee – The reference period is either:
  • The 28-day period finishing at the end of the most recent payment cycle for the employee for the entity that ended before 1^st March 2020; or
  • The 28-day period finishing at the end of the most recent pay cycle for the employee for the entity that ended before 1^st July 2020.
• Eligible Business Participant – The month of February 2020
• Eligible Religious Practitioner– The month of February 2020

THE PAYMENT TIERS

The payment tiers will apply as below:

THE ACTUAL DECLINE IN TURNOVER TEST

From 28^th September 2020, business will need to apply the ‘Actual Decline in Turnover Test’ in addition to the existing ‘Decline in Turnover Test’.

The new “Actual Decline in Turnover Test’ can be satisfied in two ways stated below:

• The Basic Test; or
• The Alternative Test.

The Basic Test is met when your actual GST turnover for the turnover test quarter period, falls short of the relevant comparison period, by the specified percentage.

To apply the actual decline in turnover test, follow the below steps:

1. Identify the turnover test period;
   • For Extension 1 – This is the quarter ending 30^th September 2020.
   • For Extension 2 – This is the quarter ending 31^st December 2020.
2. Identify the relevant comparison period;
   • For Extension 1 – This is the quarter ending 30^th September 2019
   • For Extension 2 – This is the quarter ending 31^st December 2019.
3. Work out the current GST turnover;
   • For both the turnover test period and the relevant comparison period in 2019;
4. Determine which shortfall percentage applies (50%, 30%, or 15%); and
5. Determine if GST Turnover has declined by the specified shortfall percentage.

The Alternative test will only be available in some circumstances. Further information is expected from the ATO on this method soon.

WHAT DOESN’T CHANGE

You are not required to re-enrol for the JobKeeper Extensions if you are already enrolled for the JobKeeper fortnightly payments prior to 28^th September. Businesses are also not required to reassess employee eligibility or ask their employees to agree to be nominated, if you are already claiming JobKeeper for them prior to the 28^th September 2020.

The JobKeeper scheme does however remain open to new participants, provided that they meet the eligibility requirements for the relevant period.

If you would like further information on the above, please visit the ATO Website for guidance, or contact us today, to see how we can assist you on 02 9299 2292 or accountant@moneyclip.com.au.

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As we embark on the start of the new financial year, it is time to wade through last years’ receipts and complete your tax return.

Last year was a different experience for most of us, and one which will have an impact on the way our tax returns are completed.

The following items are things which you should look out for when claiming deductions for work-related expenses:

• You must have spent the money yourself and not have been reimbursed.
• The expense must be directly related to earning your income.
• You must have a record to evidence the incurred expense.
• You are only eligible to claim the work-related portion of an incurred expense. (For example: if an expense is related to both work and personal use, the expense must be apportioned based on how it is used, so that the claim is made only for the work-related portion.

Further information on how to claim deductions for other work-related expenses, such as clothing, working from home, depreciating assets and self-education can be found in the ATO factsheet here.

Keeping Your Records

If you are claiming any work-related deductions, you must have records to prove how you have calculated your claim. Records such as receipts from the purchase of any goods or services, must be kept for a period of 5 years from the day you lodge your tax return, and must include the following information:

• The name of the supplier
• The amount of the expense
• The nature of the goods/services
• The date the expense was paid
• The date of the document.

The records you keep don’t need to be in paper form however, any receipts that are stored electronically such as photos/scans of receipts, are recognised by the ATO as documents. The ATO also recognise the myDeductions App which allows you to photograph and keep your records electronically. The app even has the capability to send your records directly to your Tax Accountant.

If you are unable to obtain a receipt for goods/services purchased, you may still be able to claim a deduction if the ATO are satisfied that the nature and quality of the evidence provided shows that money was spent and is a valid work-related deduction. Evidence can include bank/credit card statements showing the amount paid and who it was paid to, as well as other documents which show the nature of the goods/services provided. This however is at the ATO’s discretion.

Car Expenses

If you use your own car (whether owned, leased or hired) for work purposes, you can claim a deduction using either the ‘cents per kilometre’ or ‘logbook’ methods.

You are eligible to claim a deduction for car expenses if you use your car to:

• Perform work responsibilities.
• Attend work-related meetings or conferences, away from your usual place of work.
• Travel directly between two separate places of employment if neither place is your home.
• Travel from your home to an alternative workplace and then to your normal workplace.
• Travel from your normal workplace to an alternative workplace and back to your normal workplace.
• Performing work at changing places of employment (For example: you regularly work at more than one site each day before returning home).

The ATO factsheet for understanding how to claim work-related car expenses can be viewed here.

Keeping a Travel Diary

Travel expenses are deductible when you travel while performing your work-related responsibilities. This includes the cost of driving your car, flying, catching a train, or taking a taxi.

Accommodation costs, meals and other small expenses are also deductible when you are required to be away from home overnight whilst performing your work-related responsibilities.

To be eligible to recover the above costs you must keep all receipts or other written evidence of all incurred travel expenses. If your trip extends for 6 or more consecutive nights, then you are also required to maintain a travel diary in addition to the receipts.

A travel diary is a record of all travel and activities undertaken during the duration of the trip and should be undertaken daily and be logged either in paper or electronic format. The travel diary should include:

• Where you were.
• What you were doing.
• The times that the activities started and ended.
• The travel diary must be written in English.

The ATO factsheet for understanding how to claim work-related travel expenses can be viewed here.

As always, we are here to help you. So, for further assistance with completing your tax return, or for information regarding how to claim any eligible work-related expenses, please contact us today on 02 9299 2292, or myaccountant@moneyclip.com.au.

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With transport costs for Australian families continuing to rise, claiming some of your expenses back at tax time sounds great, but it’s important to get it right if you don’t want to attract the attention of the tax man.

The key point to remember is that you can only claim expenses directly connected to using your own vehicle as part of your work, but not for normal trips between your home and work. Examples of work-related travel include driving to collect supplies, carrying bulky equipment such as an extension ladder for work, driving to meetings, or travelling between two different workplaces.

Counting the kilometres

In the past there were four methods for claiming vehicle expenses, but from the 2016/17 financial year this was streamlined to just the cents-per-kilometre or logbook methods.

With the cents-per-kilometre method you claim a fixed rate of $0.66 per kilometre (regardless of vehicle size), for vehicle depreciation and running expenses. Claims can be made to a maximum of 5,000 kilometres in a financial year; if you drive any further you must use the logbook method.

Documentation is not required for claims using this method, but you must be able to demonstrate how you calculated the kilometres using a diary record.

Keeping a logbook

The alternative is to keep a detailed travel logbook for 12 weeks. With this method, you can claim all the operational expenses for your car multiplied by the business-related portion. This means if 50 per cent of your travel is business-related, only half of your total vehicle expenses can be claimed.

The ATO requires a legitimate logbook to record the details of all business journeys made during the financial year. It must list the date and time each trip was started and completed, start and end odometer reading for each journey, total kilometres travelled and business purpose.

Claims must also be substantiated with receipts for vehicle insurance, service and repair costs. Fuel expenses can be claimed based on actual receipts, or by estimating the business portion of kilometres travelled using the annual start and end odometer readings.

Depreciation claims for your vehicle are 25 per cent of the recorded value of the car in the year it was first used or leased. Capital costs such as the purchase price, principal on any money borrowed to buy the vehicle and improvement costs can’t be claimed.

Hire purchase vehicles

If you own, lease or hire a car under a hire purchase agreement, you can still claim deductions for using your vehicle. Keep in mind though that you will only be considered to own the vehicle if you make financial contributions for the initial purchase or lease, or contribute to the loan or lease payments. This applies even if you pay for registration, insurance and other running costs.

Traps for the unwary

A common mistake with car-related claims is not apportioning your business and private travel. You can only claim costs related to the work-related portion of your travel expenses. For example, the cost of travel between your home and work is generally considered private travel and is not claimable. This includes situations where your employer requires you to use your vehicle for small tasks on the way to work, such as picking up the mail.

When claiming car expenses, you must own the vehicle to use either the logbook or cents-per-kilometre method. If your vehicle is owned by your employer or is part of a salary package arrangement, you can’t claim vehicle expenses.

Another pitfall is forgetting to include on your tax return any allowance paid by your employer for car expenses. Car allowances are considered assessable income and if your employer doesn’t show it on your annual payment summary, you need to include it with your assessable income.

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