Reply: 1.1
From: Mike .
Hi Duncan,
Thanks for bringing this to our attention. So far the only Current Alert relating to wealth creation seminars is about taxpayers claiming significant tax deductions for partnership losses created by the acquisition of prepaid service warrants which are endorsed in favour of a client for a fee and redeemed for financial and wealth creation seminars.
http://law.ato.gov.au/atolaw/view.htm?docid=TPA/TA20025/NAT/ATO/00001
There appears to be no clear guidelines as to whether we as investors can claim seminar fees eg Freestyler membership fees, tapesets etc as a "necessary" expense in gaining or producing assessable income from our property investments. I believe it is easier to do this if you are carrying on the "business" of property investment but for someone like myself who is a PAYE employee it can be argued that my investments don't amount to a business.
There is no doubt in my mind that seminars, books and tapesets can enhance one's knowledge and lead to better decision-making for building a portfolio but is this an expense or a capital cost? It is clear that if you are just starting out and are trying to build a knowledge base prior to purchasing your first IP that the ATO would deem it to be a capital cost and is, therfore, added to the cost base of your first purchase. A capital cost is deemed to be a cost necessary to acquire the property whereas a revenue expense is deemed to be a cost necessary to service or manage the property.
http://law.ato.gov.au/atolaw/view.htm?locid='FOI/1100522P
http://law.ato.gov.au/atolaw/view.htm?locid='PAC/19360027/51'#51(1)
However, if you already own one or two properties do seminar fees suddenly become a deductible expense? In my case, I have recently attended two seminars and am booked in for a third in September. The first one was about Forward Funding for property developers, the second was an introduction to property finance and the third will be about contracts and options. In addition, I have bought a number of books relating to property development, flipping and conveyancing. Are these purchases tax deductible? They are all property related but I am not a property developer nor have I done any flips to date although my intention is to do both in the future.
My situation is even more complicated because I incurred those expenses in the UK so do I declare them on my Aust tax return or UK tax return? My 3 IPs are in Aust and total rental income is $800 per week or $41,600 per year. A couple of online enquiries produced the following feedback:
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Hi Michael
Self education expenses are only claimable under Australian Tax Law against wages and salary income, and only where it is directly linked to current employment. Can you give me a bit more information as to the exact nature of the self education, as it may be that it can be classified as something else?
I think this would then get down to whether or not the ATO considered that 3 properties were sufficient to be in business. I think it would be very unlikely. Of course, it would also depend on the extent of the claim. I do think it will be quite dfficult to obtain a deduction for the items you mention against rental property income.
Regards
Trish at eTAx Online Pty Ltd
Hi Michael
You are correct you will need to lodge a tax return in AUS for the Rental Property.
The self Education for your investements would not really relate to the rental property and therefore would have to be claimed in the UK.
Regards
Frank Brass
H & R BLOCK
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Not very helpful, is it?
The only Taxation Determination I could find is:
Income tax: are fees paid for obtaining investment advice an allowable deduction under subsection 51(1) of the Income Tax Assessment Act 1936 ('the Act') for taxpayers who are not carrying on an investment business?
http://law.ato.gov.au/atolaw/view.htm?basic=+TD%2095/60%20&&docid=TXD/TD9560/NAT/ATO/00001
There is no doubt that many people are claiming these as allowable deductions. Here is an example from a recent topic on the Singing Pig (UK) forum. This guy was responding to a statement I made earlier that the cost of seminars may not be tax deductible prior to owning at least one IP.
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Whether you own a property or not is irrelevant, it's a business expense. If you buy a book on how to make money in property, it's a business expense. Just like if you bought advertising space that says "properties wanted" they are all business expenses. After all, you don't go to seminars for fun, well maybe but that's not the primary reason.
Regards, Eric
Hi Eric,
Are you guessing or is that what your accountant told you?
Mike
Hi Mike,
My accountant told me. Anything to do with business education or research is tax deductible. I even put all things such as magazines etc through my accounts as business research material.
Kind regards, Eric
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The debate continues....Regards, Mike