Allowed property admin deductions

[Burramys]

As per SOP a spreadsheet of tax figures was sent to Jeff, my tax person. to put into the tax return. Sadly, I made an error on one property. There's a list of property expenditure D Advertising to V Sundry rental expenses. On I Capital allowance and R Capital works deductions I had a space in the figure column and next to this the word "nil". This allows Jeff or anyone to see that there is nothing for that item and that it is not an omission.

The error came when under the D-V list I had depreciation for another property. Jeff decided that I had made a mistake and used the lower figures. In my view he should have asked me which set of figures were correct.

All income is from property and shares. During FY13 there were a number of expenses relating to generating income, notably computer costs, phone, stationery and the like. Some were best estimates, and low ones at that, labelled nominal. For example, $30 home office, $100 telephone, $411 pro rata ISP (25%), etc. An exact figure of $210 computer repair was paid. Without these expenditures it would not be possible to manage the investments.

Jeff has not allowed any of these. He said "You do not work... We would be hard-pressed to justify the deductions that you wish to claim and certainly not in the amounts/percentages that you have included. Nominal expenses are not actual expenses. The ATO needs definites, not estimates unless it is specifically stated in ATO rulings or the legislation."

My understanding is that any reasonable expense used for the purpose of generating taxable income is an allowed deduction. Further, how is one to get a precise figure for pro rata use of a home office, computer or ISP? Counting six minute intervals is a bit extreme.

Taxation Ruling 93/30 seems to agree with me, http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9330/NAT/ATO/00001

Any comments?

 

[Paul@PFI]

Tax Agent

I'm with you. Its your return and the taxpayer declaration says as much. Your position is reasonably arguable both ways. He can advise you your claim is a bit reckless but that doesnt make it wrong. ATO suggests a "diary" whatever that means. Never seen one in 20 years !! It means "guestimate"

The tax practitioners board can now penalise tax agents for recklessness if clients are penalised for reckless deductions. Days of just enterering all client $$ into return ended. We need to weight it up a little. Yours doesnt seem like fraud !! Its a bit of a stretch to suggest he is the ATO and pre-audits your deductions. Thats not his role. He can advise. You can disagree. He will note that and its his excuse later...I'm sure you would agree on that. Have you discussed this difference of views?

I would think repair of computer needs apportionment eg ISP etc. Start with total annual costs then determine % and work that way. For example ....34cents home office costs per hr for electricity etc...Rental and other similiar records wouldnt be that onerous ?? Maybe 5 hrs a month ?? = $20 ?? Thats what ATO consider a "reasonable basis"...They may seek evidence you paid $400pa for ISP costs and then seek how you arrived at (say ) 10%...

That said as a taxpayer without employment income cant claim some deductions ie gifts if they create a loss, super creating a loss and "work related expenses" but these can be claimed against dividend income. No divs ??? That is problematic as ATO return validation will fail.... maybe what he is getting at ?? If so he can accumulate these to offset a future cap gain.

 

[Rob G.]

My understanding is that any reasonable expense used for the purpose of generating taxable income is an allowed deduction. Further, how is one to get a precise figure for pro rata use of a home office, computer or ISP? Counting six minute intervals is a bit extreme.

Taxation Ruling 93/30 seems to agree with me, http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9330/NAT/ATO/00001

Any comments?

If you read the references at the bottom, then you will be directed to PS LA 2001/6 about keeping a home office diary for a representative month.

Cheers,

Rob

 

[Burramys]

Paul, I was unaware of the tax advisor being liable for reckless advice. My understanding was that the taxpayer was fully responsible. The figures are not fraud, and are at worst mistaken. But they are low estimates, and small dollar values at that. The matter has not been discussed with Jeff as I wanted to be more certain of the legal ramifications.

Computer apportionment costs is interesting; I'll have to think about that. The main point of the computer is to generate income, with some non-business use as well. XXX-rated sites are for health, improving blood circulation, so necessary for property investors.

The costs are quantifiable and the percentages are best estimates. Taxable income is still above $18 200, so tax will be paid.

Rob, I was unaware of PS LA 2001/6 about a home office diary. I was relying on my quite old printed copy of TR 93/30. PA LA 2001/16 says that a diary will be accepted by the ATO. I am unable to locate a reference that a diary is mandatory.

FY13's tax details submitted to Jeff are very similar to those of previous financial years. The "reasonable person" test is used, and also if the amounts claimed are fair. I'll quite happily claim as much as legally possible, but endeavour at all times to comply with the law. This is why I posted on this issue.

Ultimately the taxpayer makes the calls. The tax agent can advise, and if that advice is disregarded then the taxpayer is responsible.

Quite a few years ago I had an accountant, formal qualifications, including CFP. Whilst I was and probably still am well below this level I figured out that the accountant was wrong on a property or share matter. He simply would not believe me. I had to get a private ruling before he admitted defeat. Then he had the gall to charge me extra as he didn't know the law. I did not pay and found another person to assist me. In effect, an amateur specialist beat a qualified generalist. This should not have happened.

Thank you both for your advice - most helpful.

 

[Paul@PFI]

TPB Changes

Since the tax practitioners board have taken over regulation of all people in the tax industry they have imposed a few minimum standards:
- PI insurance is mandatory (and its now checked)
- Safe Harbour provisions (Google TPB safe harbour)
And the tax agent is expected to be diligent and not just accepting of taxpayer claims. Sure the clients return but I can get smacked for being blind to possible errors.
eg : PAYG Summary has an allowance described as travel.....Is it for a car or overnight accom ?? Both you say ??? OK so how much was each... Makes a difference when TD2012/17 claims for accomodation etc deduction are made !! (An agent recently got referred for strike-off for this mistake). Also truck drivers with an overnight allowance on PAYG Summary...So they can claim $$$ per night deduction...Again a tax agent just made that mistake too. Apparently all drivers working after 6pm got the allowance even if they didnt have accomodation costs incurred. Tax agent was found reckless and referred to TPB and professional body.

Its good practice for agents to document so their butt is covered. If they tell me they dont have receipts I'm as liable as them in their audit when they tell ATO that they told me.

Not quite sure how a computer generates rental income....XXX rated sites sound more like a medical expenses tax offset issue

Unqualified v;s qualified...Young Miss Anstey made ATO / Treasury look stupid in the High Court too.. Her dad tax was an agent though.

I reckon a "diary" for substantiation is about as factual as a comic. Who would record "googled pics of busty lasses - 10mins"???

 

[Burramys]

I was unaware about much of what you have posted. Whilst diligence is good, it can perhaps be taken too far. For decades I have sought to minimise my tax within the law. There is no way that I would ever seek to break the law, like bottom of the harbour.

My spreadsheets have many entries in the form $123.00 from PM, accounting software, receipt, bank statement or the like, with the date that it was entered. If uncertain I put in bold "Check this". I may make a clerical error, but the intent to comply with the letter and spirit if the ITAA is clear.

Its good practice for agents to document so their butt is covered. If they tell me they dont have receipts I'm as liable as them in their audit when they tell ATO that they told me.

It should come down to the reasonable and prudent person test. I have electricity and utility receipts, pro rata can be estimated, and I claim under that figure. It's simpler.

Not quite sure how a computer generates rental income....XXX rated sites sound more like a medical expenses tax offset issue

Unqualified v;s qualified...Young Miss Anstey made ATO / Treasury look stupid in the High Court too.. Her dad tax was an agent though.

I reckon a "diary" for substantiation is about as factual as a comic. Who would record "googled pics of busty lasses - 10mins"???

The computers are necessary to track things, just a normal business tool, even though I am not working or in business. I am generating taxable income, and without the computes this would not be possible.

Your comments about a diary are interesting. I've always done a rough and low estimate, which I may label "nominal". Jeff doesn't like nominal.

The expression is "Oogled pics of busty lasses - 10 minutes." CFPs do this.