Analysis of Tax Assessment Act of Australia: Deductions and Income

This report provides a comprehensive analysis of the Australian Income Tax Assessment Act of 1936, focusing on the principles of deductibility, income, and tax accounting. It examines the tax implications of investment properties, such as rental houses and property flipping, including GST and capital...Read More

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Introduction
This paper sets out to examine principles of deductibility, income and tax accounting under the
1936 income tax Assessment Act of Australia. It shall also explore on security of income tax
contrary to avoidance- and also tax nonpayment where the law requires it. In Australia, a
person’s home is exempt from any form of tax. However, investment property such as rental
houses, property flipping amongst others have tax implications. Some of the taxes in this
segment include goods and service tax (GST) and capital gains tax (CGT). If one rents out a
property or invests in a rental property , he or she is required to keep records right from the start.
In a tax return, one is supposed to work out the total amount of expenses that can be claimed as
deductions(Engdahl, 2011).
In this regard, when a property is disposed there is tax deducted for the capital gain. In this case,
the property was not earning any income therefore, the property is still subject to capital gains
tax. You cannot claim tax deductions because the property dis not generate any tax. However,
costs of ownership can be included which can reduce liability brought by capital gains tax
liability when you sell it.
There are deductible expenses that are deducted from rental income(Woodson and Lewis, 2004).
Deductible Expenses
For the determination of the net return of the real estate capital, all the necessary expenses for
obtaining it can be deducted from the full income, as well as the amounts destined to the
amortization of the real estate and of the other assets assigned with it, provided that they respond
to its depreciation. effective

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Expenses necessary to obtain the returns: interest and other financing expenses and conservation
and repair expenses
The following are considered among the expenses necessary to obtain the returns, among others:
1. Interest and other financing expenses Interest and other financing costs of the foreign capital
invested in the acquisition or improvement of the property, right or faculty of use or enjoyment
as well as, as the case may be, of the assets transferred with the same(Lakshmanan, 2015).
2. Conservation and repair
The expenses of conservation and repair of the goods producing the yields are deductible. For
these purposes, they have this consideration:
a) Those carried out regularly in order to maintain the normal use of material goods, such as
painting, renovation or arrangement of facilities.
b) Replacement elements, such as heating installations, elevators, security doors or others.
The amounts destined to the expansion or improvement of the assets are not deductible for this
concept, as they constitute a higher acquisition value whose recovery is effected through the
corresponding amortizations.
The maximum total amount to be deducted for interest and other financing expenses and for
conservation and repair expenses may not exceed, for each asset or right, the amount of the full
income obtained(Papadimitriou, 2006).The excess may be deducted in the following four years,

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without exceeding, together with the expenses for these same concepts corresponding to each of
these years, the amount of the total income obtained in each of them, for each good or right.
• The amount pending to be deducted from the years 2012, 2013, 2014 and 2015 will be applied
in the 2016 statement with priority to the amounts corresponding to the same financial year 2016
for these same concepts.
In the event that there are several leases in the year on the same property, the maximum limit of
the amount to be deducted for interest and maintenance and repair costs must be computed
taking into account the amounts paid in the year and the total income obtained in it, so that, for
any of the lease contracts, the amount deducted for interest and conservation and repair costs
could exceed the income obtained(Ricardo, n.d.).
Other expenses necessary to obtain the returns
1. Taxes and non-state surcharges
Taxes and non-state surcharges are deductible, as well as state fees and surcharges, such as the
IBI, fees for cleaning, garbage collection, lighting, etc., provided that:
a) They affect the computed returns or the goods or rights that produce them.
b) They do not have sanctioning character.

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2. Doubtful collections
The balances of doubtful collection are deductible, provided that this circumstance is sufficiently
justified. This circumstance is sufficiently justified:
a) When the debtor is in a situation of bankruptcy.
b) When between the moment of the first collection management carried out by the taxpayer and
that of the end of the tax period, more than six months had elapsed, and it had not occurred
a credit renewal. When a doubtful balance was collected subsequent to its deduction, it will be
computed as income in the year in which said collection takes place.
Non-Deductible Expenses
They will not be deductible as an expense, among others: - Payments made for claims arising in
real estate that result in decreases in the value of the taxpayer's assets. - The amount of the
improvements made in real estate, without prejudice to the recovery of their cost through
depreciation(Fishman, n.d.).
Although far from other countries around us, little by little people are making the rental market
grow towards the community average. The crisis has pushed many people to rent what used to be
second property’s or, in the worst case, to rent their property to pay the mortgage while they
agreed to a more modest residence. If you are among these people and you have not yet made the
income statement as a property, we give you the keys so you know how much you will pay. And
if you are thinking about renting your property, here you will find the information to know what

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percentage of your profit will be claimed by properties, with numbers and everything.
What to do with the unpaid rent on the income statement. This is how rent for tax purposes
works(Papadimitriou, 2006)
Everyone knows how rent basically works: you pay an amount for the use of a certain good for a
specific time. The case of property is not different. The tenant will pay an amount for being able
to use a property during the period marked by the contract. What does change is that there is a
specific legislation for rent, which is defined by the Urban Leasing Law and that determines
different rental scenarios with their different tax implications.
Tax Return back on Rental Property
In the case of the lease for a habitual residence, there must always be a contract that, in addition,
it will be necessary to deposit in the corresponding regional entity so that the tenant can deduct.
For tax purposes, as a landlord you receive a series of income for your flat and you have to face a
series of expenses. What the Treasury is interested in is the result of subtracting revenues from
these expenses -as happens with the self-employed, for example(Woodson and Lewis, 2004)-.
These expenditures are what are often erroneously denominated deductions for rental of property
for the landlord and that are only the costs that the Treasury considers appropriate or logical to
put the property for rent.
When making the income statement you will only have to pay taxes for the difference between
your income and your expenses, not for the total amount of the rent of your property(Ricardo,
n.d.).

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What expenses can you deduct?
In general, any expense derived from putting the property in rent can be included, although as it
usually happens, the Treasury is something more specific and has a list that serves to guide the
taxpayers(Woodson and Lewis, 2004).
The specific elements marked by the Tax Agency are the following:
Interest and financing costs of the capital invested in the acquisition or improvement of
property. In other words, the interests of the mortgage, although not the capital part
Interest and financing costs of the belongings transferred with the property (furniture,
boilers ...). If you financed the sofa or the appliances, you can include the part intended to pay
interest
Taxes and state taxes that affect the property such as the IBI, the cleaning fee, garbage
collection or lighting, as long as you pay as a property. If you pass it on to the tenant you cannot
subtract them(Woodson and Lewis, 2004).
Expenses to formalize the rent
Expenses for the legal defense of property and its performance.
Conservation and repair costs - eye, improvements do not come here. If you change your door
for a better one, you will not be able to include this expense.
Expenses for services and supplies, as long as the landlord pays them.
The amortization of the property and the assets it contains. This will be 3% of the construction
value due to its wear.

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Administration expenses, surveillance, porter and other services related to the farm.
Premiums for property insurance contracts
Conclusion
The previous operation will give us the tax base of the rent, on which you can also make a series
of reductions depending on the age of the tenant. If you choose to rent to those under 30 years
old, you can apply a 100% reduction on the benefits obtained, provided that certain requirements
are met. That is, you will not pay taxes for the rent. The main requirement is that your net
income from work exceeds 75% of the IPREM or Public Indicator of Multiple Effects Income in
each year, so if you rent to students, go over the numbers - here you can see what happens in this
case.

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References
Engdahl, S. (2011). Taxation. Farmington Hills, MI: Greenhaven Press.
Fishman, S. (n.d.). Every landlord's tax deduction guide.
Lakshmanan, J. (2015). Taxation laws. [Place of publication not identified]: Universal Law
Publishing.
McCluskey, W., Cornia, G. and Walters, L. (2013). A primer on property tax. Hoboken, N.J.:
Wiley.
Papadimitriou, D. (2006). The distributional effects of government spending and taxation.
Basingstoke [England]: Palgrave Macmillan.
Ricardo, D. (n.d.). Principles of political economy and taxation. New York.

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Weltman, B. (2006). J.K. Lasser'sTM 1001 Deductions and Tax Breaks 2007. Hoboken: John
Wiley & Sons.
Woodson, J. and Lewis, E. (2004). Coming on home soon. New York: G.P. Putnam's Sons.