Taxman’s surprise bit of magic

Peter Weekes

The Age

01 May 2004

The ATO has some good news in its bag of tricks for wounded share and property investors out to ease their tax burden. Peter Weekes reports.

It's ironic. The mere mention of the taxman normally brings derision and abuse, but come July he may well be the toast of dinner parties around the nation.

As the stockmarket reels from this week's biggest one-day fall in more than a year and Melbourne house prices drop for the first time since 2001, there is some good news for property and share investors, and, strangely enough, it is courtesy of the Australian Tax Office.

Earlier this year, the Tax Office made a decision allowing the 44,000 small investors in one-time mining blue-chip Pasminco to claim a capital loss after it went into administration, but not liquidation.

That ruling also applies to many other companies in the same or similar situations, although claiming the loss is not straightforward, says Tony McLean, who is the founder of delisted.com.au and former chief executive of the Australian Shareholders Association. More on that later.

The news is also good for wounded property investors. As prices fall and experts predict a rate rise, some investors can not only lower their interest rate and lock it in before a rise, they can also bring 2004-05 tax deductions forward to July 1 - this year.

CPA Australia's senior tax counsel, Paul Drum, says by pre-paying up to 12 months' interest on an investment loan, you can claim the deduction this financial year and have it in your hand by the second week in July.

To take advantage of pre-paying, the loans must be fixed rates. Some banks, such as National Australia, ANZ and Commonwealth, are currently offering one-year fixed interest-only loans up to a quarter of a percentage point below the standard variable.

While this represents a saving of roughly $600 on a $260,000 loan, investors who want to swap to a fixed loan will be slugged with a switching fee, usually about $300.

Property investors can also pre-pay expenses such as council rates, repairs and maintenance, in fact any expense that landlords fork out to generate income from an investment property, Drum says.

“Just bring them forward because you are going to incur it anyway. You may as well have the deductions now rather than wait another 11 or 12 months," he says.

The same rules apply for those who borrowed to invest in the stockmarket, say Jennifer Brookhouse, technical manager at RetireInvest.

Naturally, beyond accepting a couple of ``gifts" from the taxman, it is probably best to avoid him and stash some extra cash away for retirement - legally of course.

Those who are self-employed can make fully deductable personal contributions of up to $5000. After this, every dollar brings a 75 ¢ deduction up to a limit according to age.

“(Making the contributions) will also have the effect of reducing their taxable income and similarly, an employee can potentially reduce their taxable income through salary sacrifice," says Andrew Lowe of ING.

Taxpayers Australia national director Peter McDonald says a lot of people tend to forget about voluntary super contributions for their spouse or opposite-sex de facto.

“You get an 18 per cent rebate, so that kills two birds at once because you are effectively giving your spouse money for retirement and you are getting a rebate," he says.

As long as the partner is aged under 65 and earns less than $13,800, taxpayers can claim a rebate of up to $540 on the $3000 limit.

For the burnt shareholders of the 37 companies on delisted.com.au's list, there is one more hurdle before a capital loss can be claimed against any current or future capital gain.

Previously, to make a claim a liquidator had to declare the shares worthless (an administrator can't do this under the law), creating what is known as a capital tax event.

Tony McLean says that under the new ruling, an event can be created by transferring the shares into a trust by way of a declaration.

“It's a good year for investors in those companies because this is the first year we have had the advantage of this decision," he says. “In the past shareholders in these companies have not been able to transfer their shares and thus crystallise their tax loss, but this decision of the ATO means finally they can."