January 2011 E-News
In this month’s edition of E-News:
1. Check out our new Financial Calculators which could save you thousands of dollars
2. Some Important Tips for claiming Interest on Rental Property Loans
3. We received a very special Client Testimonial we wanted to share with you
4. Education Tax Offset – Are you entitled to claim? What expenses are eligible?
New Financial Calculators added to our Website
Recently, we loaded a range of Financial Calculators onto our website to assist clients answer a whole host of questions that up until now could really only be answered using software available to banks, mortgage brokers or financial planners.
These calculators are very easy to use and can help answer questions such as:
* How sooner will I pay off my home loan if I repay an extra $100 a week?
* If I borrow $200,000, what will be the monthly repayments based on a certain interest rate & loan term?
* How much can I borrow if I can only afford to repay $1,000 per month, based on a certain interest rate and loan term?
* I have 5 years before I want to put a deposit of $100,000 on a property. How much would I need to save per week, if I can earn an average 6% rate of return?
You can try out our Calculators at www.eclipseaccounting.com.au/resources/calculators
Important Tips for Claiming Interest on Rental Property Loans
Most investors would be aware that they can claim interest on a loan to purchase a rental property. However, there are a few rules and traps to be aware of.
- Firstly, the property must be rented, or available for rental, in each income year you claim a deduction. If you use the property for private purposes, you cannot claim interest for that period that it is used for private purposes.
- If you take out a loan to purchase land on which you intend to build a rental property or to finance renovations to a property you intend to rent out, the interest on the loan will be deductible from the time the loan is taken out. However, if your intentions change, the deduction is disallowed.
- These days, banks and other lending institutions offer a range of financial products which can be used to acquire rental properties or finance renovations or repairs. Many of these financial products permit flexible repayments and redraw facilities. As a result, a loan could be used partly to purchase a rental property and partly for private purposes. In these situations the interest must be apportioned between deductible and non-deductible based on the amounts borrowed for each purpose.
Complications arise where investors have a loan facility that has a fluctuating balance due to lump sum repayments and withdrawals, where some withdrawals are for rental property purposes and others for private purposes.
The fact is, every time a private withdrawal is made from a loan, the deductible percentage of the loan has to be recalculated to a lower percentage. If this is happening on a regular basis, it can be a real nightmare to calculate the deductible amount of interest.
For example, if a loan for $500,000 was wholly for rental property purposes, and a lump sum repayment is made of $50,000 to reduce the loan to $450,000, the loan is still 100% deductible. If a month later, the owner withdraws $50,000 to purchase a private car, increasing the debt up to its original $500,000, the loan will now only be 90% deductible and 10% private. The fact that you had previously made a $50,000 lump sum repayment is irrelevant.
It is important that property owners plan ahead before making large repayments on their rental property loans or withdrawing amounts from these loans for private purposes. In these circumstances, you could save thousands of dollars if you contact your accountant before making any major decisions, to ensure that interest deductions are maximised and accounting problems are avoided.
Special Client Testimonial
Here is a testimonial from a client we just had to share with our readers. This client lives more than 200km north of Kalgoorlie and joined our firm early last year, dissatisfied with their current accountant. They operate an expanding earthmoving business in and around Kalgoorlie. Brett & Matt intend to fly to Kalgoorlie in a few months to finally meet face-to-face with Iain & his wife, Anna.
“We changed to Eclipse Accounting Group because of a recommendation through a mutual business associate. We operate our earthmoving business from Kalgoorlie in W.A. Given the access we all have to technology, it is as though Eclipse were next door. We cannot fault the service we have received while often requiring quarterly reports in a couple of days.
We have found all staff to be polite and helpful. The company is able to appreciate that timeliness in this business environment is crucial and at times immediate mobile telephone contact is necessary.
Eclipse Accounting has certainly ticked all the boxes for us and is able to cater 'one on one' for a rapidly growing business where prompt service and sound advice is everything.
I would have no hesitation in recommending Eclipse to anyone who is sick of paying huge sums of money to big firms that do not deliver."
Iain McGregor - Breakaway Earthmoving Pty Ltd, Kalgoorlie W.A.
Attention: Clients & Friends of Eclipse Accounting Group
If you know any business owners that are dissatisfied with their current accountant, please keep us in mind whenever speaking to them.
We always welcome, appreciate and value any referrals received.
Education Tax Offset
Attention Parents! Don’t forget to hold onto your receipts for all those education related expenses. If you think you will be entitled to “Family Tax Benefit A” for 2010-2011, you should be entitled to receive a Tax Offset for part of your education costs.
For more information, go to the Government website at www.educationtaxrefund.gov.au
