The Tax Lady
"One lady you can't live without"

Frequently Asked Questions

1. What expenses can I claim for my rental property?


  • Legal fees up to $10,000
  • Rates and Insurance
  • Interest paid on funds borrowed to purchase your property
  • Property Management fees & commission
  • Repairs and maintenance (unless they improve property)
  • Motor vehicle and / or travel expenses to inspect the property
  • Mortgage repayment insurance
  • Accounting fees
  • Depreciation


2. Business structure - which one should I use?


Sole Trader


Advantages


  • The simplest and cheapest way to start in business.
  • Any income is taxed at the progressive rates of individual tax
  • Disadvantages
  • Does not provide limited liability. One is personally liable for the debts of the business. Personal assets can therefore be at risk.
  • Income over $70,000 is subject to a 33% tax rate.

Partnership


Advantages


  • More than one business owner - therefore more skills, experience and management expertise available.
  • Low start-up costs companies to Limited Company.
  • Tax is paid at personal rates.


Disadvantages


  • No limited liability. Partners are liable (jointly and severally) for the debts of the partnership. This means that one partner is liable for debts another incurred on behalf of the partnership.
  • Income distributions may be inflexible.
  • No protection for partners assets which may be seized to satisfy partnership debts.
  • Losses are deductible against other income, subject to certain loss offset limits.

Limited Company


Advantages


  • Once a company name is incorporated no other company can be registered with the same name.
  • It is a stand-alone entity - separate from the owners.
  • Provides limited liability, although most lending institutions will require personal guarantees.
  • Permits splitting of dividend income to shareholders
  • If the company is a 'qualifying company' dividends will either have imputation credits attached which will reduce or eliminate the individual's tax liability.
  • If the company is also a 'loss attributing qualifying company' tax losses can be attributed to shareholders.


Disadvantages


  • Does not protect directors from personal liability. If a director continued trading when the company was insolvent one can be held to be personally liable for the debts of the company.
  • Costs of establishing and administering are higher.
  • Business losses have to remain in the company unless the company is an LTC.

3. When do I have to keep a vehicle logbook?


Sole-traders and partnerships may have to run logbooks if the vehicle they use for business is also used for private running. A logbook is required to be kept for 3 months every 3 years. You start with the kilometres at the start of the 3 month period then record the number km travelled that day and the reason for the trip. At the end of 3 months the total private km divided by the total km travelled during that time will give you the private use percentage eg.

If your situation changes within the 3 year period after that then you will need to do another log book. Companies do not have to do a log book, they are liable for FBT instead. Shareholders are deemed to be employees of the company and are therefore subject to FBT for cars available for private running.