Hi, wondering if you legally have to declare losses when you do your tax? We are in a situation where we can't negative gear (husband at Uni, I work part time, so we don't get any tax benefits from our losses,) yet Centrelink will still add them as income, meaning we'll have to pay back a big chunk of our Family Tax Benefits. It's so hard for me to comprehend how we can pay thousands of dollars out of our own pocket, then have it counted as income we received!! (Maybe someone with a better Maths brain than me can explain how and why it works that way?) Given the situation, can we legally claim enough of the losses to be neutral, and not worry about the rest?
Its crazy isn't it!
i don't think there is any law saying you must claim all deductions. But have you worked out if you keep carrying the losses forward will this save you more tax in the future than you will lose in benefits now if you minimise the deductions?
Maybe there is a way around things too. e.g You need to get rid of losses and someone needs to get rid of profits? You need to make more income for your property so maybe a company could pay rent for some part of it to get rid of the loss. The company may then get a deduction for the rent……..
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the reply. Maybe the company idea is something we can talk about when we have our taxes done at the end of September. We're trying to figure out now whether carrying the losses forward might be beneficial despite the loss, but we need a crystal ball – no idea how much we'll be making in the future, and the losses will probably be large enough each year that extra will probably be wasted anyway. Thanks again for your ideas.
The losses are applied firstly to exempt income such as FTB and then you carry forward the rest against future taxable income.
From a tax point of view maybe eg your husband might only show enough of his half share of the deductions to wipe out his share of the rent. You could then show your share to a maximum amount of your share of the rent plus your income
eg Hubby Rent Share $5000
Actual deductions $10000, but just claims $5000You Wages $20000
Rent Share $5000
Claim actual deductions $7500, pay tax on $17500 and Centrelink assesses you as having income of $20000What got me laughing was that Centrelink are advertising jobs for Financial officers at the moment to advise people how they can save for their retirement when the Government policies for Welfare cripples anyone who tries to invest in property by deeming a loss as income.
The response to my question by Centrelink about how I can be deemed to earn income when I had no income but had a property making a loss was that I get a tax deduction on the loss.
When I said to them how do you get a tax deduction when you pay no tax they then said my partner claims her half.
But after I hung up and sold my negatively geared property I also realised that my partner only gets back 30% from a tax deduction on 50% of the loss which means 15% of the loss. Yet Centrelink deems 50% of the loss for my partner as income.To really rub salt into the wound, when you sell the property and make a capital gain this is deemed income by Centrelink and your Centrelink payments for that financial year are required to be paid back. Yet a capital loss can't be claimed against other income!
Just realise that when dealing with Centrelink fairness, correct international accounting standards and common sense
are thrown out the window.this is a fairly new rule i think. there is also something about salary sacrificing to super which is also now added back to calculate taxable income when calculating some centrelink benefits?
goodness knows what the henry tax review will come up with?
regards.morgan1 wrote:Maybe someone with a better Maths brain than me can explain how and why it works that way?
Centrelink make up there own rules, which can be different to ATO or other rules. Usually Centrelink rules, like 'deeming' for example are based what income your asssets could provide you, if you had that amount of cash invested differently.For example, f you own a $1M property, Centrelink take the view that you could sell it and use that cash to produce an income, rather than using tax payer's money.
So it's not as unfair or silly as it seems at first glance (but it still feels like it sucks when you're on the wrong side of it).
Best wishes
Paul
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