Monday, 30 March 2015

Work from home?

Tim works from home as a Graphic Designer and would like to know what tax deductions he may be able to claim. He has calculated that his home office represents 20% of the total area of the dwelling.

As Tim has a dedicated office at home and has no other place of business he can claim the relevant proportion of occupancy expenses as well as running expenses. Occupancy expenses include rent or mortgage interest and council rates. Running expenses can include power, telephone and depreciation on office equipment. Deducting occupancy expenses may have eventual Capital Gains Tax (CGT) implications.

Using Tim’s estimated costs over a five year period the tax impacts would be:

Home Office Total ($) Amount Claimable ($)
Occupancy costs25,000 pa5,000 pa
Running cost4,000 pa800 pa
Depreciation on Equipment2,000 pa2,000 pa
Deduction over five years 39,000

Should Tim sell his house after five years with a discounted capital gain of $100,000, he would need to report $20,000 as the taxable component of the gain. The net taxable effect of these transactions over the five year period would be $19,000 in deductions.

If the home office is not the sole place of business, running costs and depreciation would still be claimable representing a total deduction over five years of $14,000. This would not have any CGT implications on Tim’s home.

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in Woodend, Gisborne and Macedon Ranges areas within Victoria Australia.

Wednesday, 18 March 2015

Are you an Investor or Share Trader?

As recent share market conditions have improved many people are looking to invest available funds in shares.

Consider Mary:

Mary works part-time in a financial planner’s office and has a keen interest in the share market. Mary has $150,000 to invest and is considering the different tax implications if she is classified as a share trader or a share investor.

As a share trader profits are treated as ordinary income and taxed at marginal tax rates. Losses may be applied to other income to reduce overall taxable income. An example would be if Mary trades using trading techniques, undertaking market research for each potential purchase and does so on a regular basis, she may be taxed as a share trader.

As a share investor, gains and losses are treated as capital, provided shares are held for 12 months or more a 50% capital gains tax discount will apply. Capital losses can only be applied against capital gains income, with any excess able to be carried forward. An example would be if Mary buy parcels of shares predominantly for capital growth and/or dividend income.

There is no one hard and fast rule as to which classification Mary will be. It is assessed on a case by
case basis.

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in the Woodend and Macedon Ranges region within Victoria Australia.