IRD
MILEAGE
RATE UPDATE
IRD have recently amended mileage rates that can be
claimed for expenditure incurred for the business use of a motor
vehicle. The new mileage rates apply from the 2008-2009 income
year.
A self employed person may use one of three methods to
calculate the proportion of business use of a motor vehicle, namely:
- actual records
- a logbook, or
- a mileage rate
The mileage rate applies in respect of:
- self employed taxpayers
- up to a maximum of 5000 kilometres of work-related travel each year
- motor vehicles irrespective of engine size whether they are powered
by petrol or diesel
- does not apply to motor cycles
- may be used as a reasonable estimate by employers reimbusing
employees for business use of abn employee's vehicle, and shareholder
employees
The mileage rate set for motor vehicles is 70 cents per kilometre.
If business related travel of self employed persons is over 5000
kilometres per annum then they should use one of these two methods:
Actual Expenditure
Under this basis there will be the need to keep accurate records to
determine the proprtion of business use. The self- employed person will be
able to claim expenditure they incur and an amount of depreciation loss for
the business use of their business vehicle.
Log Book Method
To establish the proportion of business use of a motor vehicle, a
person may keep a log book for a test period of at least 90 consecutive
days, to establish the average portion of travel for business purposes
duringt the log book term. Taxpayers may then apply that proportion for the
log book term (uo to 3 years) to calculate the deduction for the expenditure
that they incur for business.
HOLIDAY
HOUSES- INCOME TAX TREATMENT
Rental Income derived from holiday homes is taxable
income and should be returned in the owner's Tax Return for the income year
in which it derived.
In cases where a holiday home is used by friends and family who are
not charged rent, but instead make a minor contribution towards the owner's
expenses, the payment received will generally not be rental income.
Consequently the owner will not be required to return the amount received in
the yearly Tax Return, but nor will any deductions be allowed for the
corresponding period.
If a holiday house is rented for less than a full market rental, such
as to family and friends, IRD will only accept expense claims for that
period up to the amount of rent received for that period.
Whether any expenses incurred in owning the holiday house are
deductable, depends on their connection with the income earned. In the
case of a holiday home that is rented out for only some of the income year,
the owner's ability to deduct expenses such as interest, insurance,
depreciation, rates. repairs etc. depends on the specific circumstances of
the case and whether the expenses have sufficient connection with the
earning of rental income.
If a holiday home is rented out for only some of the income year or is
is available for rent for only some of the income year, the owner's ability
to claim expenses depends on the specific circumstances of the case and
whether the expenses have sufficient connection with the earning of rental
income. For example if the holiday home is only available for rent for
11 months of the year, then only 11/12ths of expenses are deductable.
And if say you rented the holiday home for only 3 weeks at peak holiday
periods, and even if you received a high peak period payment for this, you
would still only be able to claim in the ratio 3/52 of expenses. For
the period that it is not available for rental, no expenses are deductable.
Evidence of a holiday home being available for rent generally needs to
be more than a mere statement of its availability, sporadic or limited
advertising, or advertising that is of a nature that is unlikely to attract
many customers. Rather, there must be evidence of active and regular
marketing of the holiday home at market rates and of the availability of the
holiday home at times and for periods that demonstrate the holiday home is
earning rental and is genuinely available to earn rental income.
UNITS OR HOUSES AS INVESTMENT PROPERTY?
Is it better to invest in Houses, Units, or
Apartments?
Units or Apartments are
accommodation built among a number of similar or identical units within a parcel
of land. They tend to have the majority of their value within the actual building as
opposed to the land.
Units may enjoy the following advantages over standalone houses as an
investment:
* Units tend to be cheaper so they allow an easier entry point into the
property market for an investor.
* Units generally require less maintenance and much of the maintenance is
generally done by the body corporate.
* Modern units tend to offer better security.
* Newer apartments often have facilities such as pools and gyms which can be
attractive to potential tenants.
* Units tend to be built with close proximity to city amenities and provide
greater convenience to tenants.
* Units tend to enjoy a higher rental yield than an equivalently priced
house.
* Due to units having more of their value in the building and fittings rather
than the land, they will have greater scope for depreciating and therefore allow
greater tax deductions.
The disadvantages of units are:
* The cost of maintaining the property, security and facilities will be
included in the body corporate. However, these fees can often run into the
thousands.
* Often there is no individual backyard and if there is, it may be a shared
facility.
* The capital growth of a property is mainly in land value so units may
experience less capital growth than a house.
* In some major cities there is an oversupply of units which can have a
negative effect on market value and market rents.
* Units may often have governing covenants which place restrictions on
living. For example, pets may not be allowed, facilities may not be used during
certain hours etc.
A house is a standalone property within an individual land title.
The advantages of a house include:
* Houses tend to enjoy greater capital gains through land appreciation.
* There is greater scope to add value to a house such as the ability to
improve value through renovations. Some houses may also have enough land to
allow subdivision.
* There will often be space for a garden or outdoor area, an attractive
feature for both tenants and future buyers.
* House owners can enjoy greater autonomy than units with regards to pets,
colour of the house, ability to plant a garden etc.
The disadvantages of houses include:
* A house, unless in a dilapidated condition, will be more expensive to
purchase than a unit, meaning an investor will have to contribute a larger
deposit and make higher mortgage payments.
* House owners are faced with maintaining lawns and fences, gutters and
gardens etc.
* As a house is more likely to attract families with children and pets, the
property will often face greater wear and tear on the furnishings.
Which is the better option?
Whether a house or unit is better probably falls down to the individual and
their preferences on rental yield, maintenance, capital gain and the other
mentioned pros and cons.
