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North is the new black

Posted on by daniel-admin

There is no denying the inner south of Melbourne’s residential property market, such as Prahran, Port Melbourne, Windsor and St Kilda, has seen consistent popularity and growth over recent years. And whilst it remains true that these areas are still experiencing strong property appeal, there has more recently been a distinct shift to developing inner urban areas toward the north of the Yarra River with apartments in areas such as Brunswick East and Northcote becoming increasingly popular amongst investors.

Quite simply, north is the new black.

Location, location

According to Charter Keck Cramer*:

‘Locations with more attractive attributes have greater attraction for residential apartment dwellers. For example, Melbourne’s largest apartment markets are within the central and inner-city suburbs, which enjoy multiple attractive location features.’

Whilst areas to the south of the Yarra may enjoy easy access to the coast, areas in the inner north enjoy their own attractions.

Northcote, for example, is only five kilometres to the Melbourne CBD and its village-like feel comes to life through its boutiques, cafés, bars, restaurants, eclectic retail and all the day-to-day conveniences that make a suburb feel like home.

Similarly, Brunswick East is located within close proximity to Melbourne CBD (4km), as well as a number of park and recreation spaces such as Princes Park, Royal Park and the Melbourne Zoo.

These locations also play host to some of Melbourne’s best restaurants and night spots, creating a sense of atmosphere and buzz which in turn is driving the popularity and demand of these suburbs.

With easy access to multiple public transport options, Melbourne’s inner northern suburbs are well connected, ticking all the boxes for potential renters. Northcote, alone, has five train stations within its boundaries.

A new way of life

As people flock to these northern hotspots, pushing a continued shift in demand towards city fringe lifestyle suburbs, the scope for continued development of higher density dwellings in these areas is extended.

Charter Keck Cramer reports:

‘It is anticipated that apartment living will become an increasingly preferred choice for many households in Melbourne over the long term for a range of economic, social, environmental and demographic reasons.’

As the nature of the household structure continues to change, with the fastest growing segments being singles and couples without children, it becomes clearer why apartment living is increasingly becoming a more favoured option.

As John Hopkins has said on many occasions, when a property purchaser is weighing up their prerequisites in terms of what they want out of their investment, there are some fundamentals they are often not willing to comprise on, such as location, access to amenities or price. However, the one thing investors are progressively shifting on is the size of the property, hence the shift towards apartment living.

This, along with a significant acceptance of living in apartments by all generations (perhaps in part caused by increased exposure to apartment living in international cities) tips the balance favourably toward apartments from a demand sense.

Number crunching

Whilst location remains a force in determining demand, and is an important factor in property investment considerations, it is also important to consider other contributing factors such as population growth and demographics.

According to Urbis, the population in Northcote is forecast to increase from 25,800 in 2015 to 32,900 in 2036, representing 28% growth in the number of residents. Forecast population growth is indicative of growing demand for dwellings as new residents require residential properties.

Similarly, the ABS reports that the population in Brunswick East in 2006 was 7,412 people. By 2011, the population was 8.484 showing a populating growth of 14% in the area during that time. And this growth is set to continue, especially in the younger rental and first home buyer market with such easy access to the city’s best universities and hospitals – on top of the enviable lifestyle opportunities.

These statistics help provide insight into future demand of apartments in these areas, as well as the varying groups who are drawn to living in these areas, thereby providing some understanding into the type of tenant you may expect.

It is important to note this article does not form an exhaustive list of considerations for would be investors and it remains prudent to seek advice before making investment decisions. The Hopkins Group currently has a number of Recommended Properties located within Melbourne’s inner north.

For more information on these properties or to discuss the content of this article further, please call 1300 726 082 and ask to speak with one of our Property Investment Advisers.

 

*Abbotsford Apartment Market Context and Project Assessment Summary, Charter Keck Cramer

Image: Barry – High Street, Northcote

This blog post was written on behalf of The Hopkins Group (John Hopkins Property Pty Ltd). This blog post contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs.

The importance of landlords insurance

Posted on by daniel-admin

Generally, when you own your own home, taking out insurance on your property is something that is done without a second thought. However, many who purchase an investment property may not think about taking out landlords insurance – and may not necessarily see its value until too late.

At The Hopkins Group, we encourage all of our landlords to take out landlords insurance. While many landlords are aware that a building must be insured, and do organise building insurance themselves, what many don’t realise is that this type of insurance does not provide a comprehensive level of cover which may be needed.

Some landlords can be under the impression that contents should be covered by the tenant’s contents insurance – which is correct for the tenant’s personal belongings. However, unfortunately things such as flooring and window furnishing are sometimes also considered contents for the purposes of building insurance coverage, but not under the tenant’s content insurance policy.

Standard home buildings and contents policies also do not usually provide cover for two of the most significant risks facing landlords — malicious or international damage by tenants and failure to pay rent.

While most tenants take good care of the property they are leasing, those that don’t may intentionally cause extensive damage.  Intentional damage is also not generally covered by a standard home insurance or body corporate policy either.

Another key difference between landlords insurance and regular building insurance is that as a landlord, you can claim loss of rent with landlords insurance.  Loss of rent coverage includes situations such as where a property is untenantable, tenants absconding, there is a default of rent, no vacant possession, death of a sole tenant, malicious damage, murder and suicide just to name a few. There are many landlords insurance providers in the market, so it pays to shop around and do your research. One provider that many of our clients use is Property Insurance Plus. As a result of our relationship with Property Insurance Plus, we are able to share an offer available exclusively for our clients for both Building and Landlords Loss of Rent Insurance. Our property management team believe this offer will help make your residential property investment more secure, and save you money, whether or not you have Landlords Insurance already.

Your exclusive benefit is a 14 month cover for just 12 months premium, i.e. two months free insurance for both landlord and building cover, a further 10% for two or policies and discounted building insurance premiums.

Landlords comprehensive loss of rent- accidental damage is only $287.00* and most importantly, is a tax deductible expense. For only $287.00 for a 14 month cover it really is a piece of mind when renting out your investment property because unfortunately things do happen and you will be prepared in any event.

For further information on landlords insurance, or to find out more about this offer, please call 1300 726 082 and ask to speak to a property portfolio manager today.

*These benefits are for Landlords cover only – NOT building insurance. Please contact Property Insurance Plus if you require a quote for building insurance. Please refer to the Product Disclosure Statement for complete details of terms and conditions of cover.

Budget 2016-17: Let’s break it down

Posted on by daniel-admin

What did you get up to last night? Dinner on the couch? Bath the kids? Bit of Masterchef on the television? Not for the finance die-hards at The Hopkins Group.

As the clock ticked over to 7.30pm last night, our team of committed finance enthusiasts was busily preparing to watch, take notes and analyse the potential impacts of the Liberal Government’s budget for 2016-17. Of most interest were the proposed changes that could impact our clients and their wealth management strategies.

The hype and sensationalised media that we have endured over the past couple of weeks was soon to be realised.

As discussed in our recent roundtable discussion, negative gearing has been hot on the agenda but the Liberal Government chose to leave it untouched in next year’s budget. What they have done though – and of most concern to our clients – is to introduce significant changes to superannuation caps. This will mean clients will become restricted in the way in which they can build wealth within the superannuation environment.

To keep this short and sweet – as we assume your inbox has been flooded with other post budget debriefs – we have provided a list of key superannuation and taxation issues that were addressed in last night’s announcement.

The proposed effective date for all is set at 1 July 2017 for all but one key change; the lifetime cap for non- concessional superannuation contributions came into effect at 7.30 pm (AEST) 3 May 2016.

Superannuation

  • Contribution caps
    • Concessional (reduction in caps)
    • Non-Concessional (life time limits introduced)
  • Catch-up concessional contributions
  • Tax deduction for super contributions extended
  • Super contributions tax – high income earners
  • Removal of work test
  • Removal of the maximum earnings test
  • Retirement income balance cap of $1.6m
  • Transition to retirement
  • Low Income superannuation tax offset (LISTO)
  • Low Income tax offset spouse threshold
  • Anti-detriment

Taxation

Business

  • Company tax cut
  • Small business tax discount increase and extension
  • Small business entity turnover threshold increase
  • Small business $20,000 instant asset tax write-off extended
  • Simpler Business Activity Statements (BAS)
  • Targeted amendments to Division 7A

Personal

  • Change to income tax thresholds
  • Increased Medicare low income thresholds
  • Medicare levy income threshold and rebate pause extended
  • Childcare subsidy delayed
  • Reversal of decision to remove backdating of veterans’ disability pension claims
  • HECS

There’s so much detail within each of these points and we encourage you to book in with your adviser on 1300 726 082 to discuss how your personal circumstances could be affected – especially in relation to wealth creation.

What’s your next move?

In the meantime, an easy way to get your head around the budget and what it means in the grand scheme of things, is to register for #ECON16, our annual economic briefing on Thursday 19 May at ACMI, Federation Square. Scott Fletcher, Director – Client Investment Strategies, Russell Investments will be our keynote speaker on the night and we look forward to hearing his response to Budget 2016-17.

Find out more about #ECON16

Further reading

Budget website

 

A Changing of the Guard; SMSFs and Young Australians

Posted on by daniel-admin

Superannuation is an ever changing industry and now, more than ever, it’s essential that young Australians use their retirement fund in an efficient and considered manner.

More often than not, superannuation is something that people sign up to in their youth and then forget about until it’s too late. Typically, Gen X and Gen Y have their retirement savings stored in the first fund they signed up to with their first job. They might even have multiple accounts they’re yet to consolidate.

But times, they are a-changin’! Over the past 12 months, the share markets have proven extremely volatile, encouraging more Australians – particularly young Australians – to consider taking control over what assets their superannuation is invested in.

The latest data from the Australian Tax Office (ATO) shows that 43% of new Self Managed Superannuation Funds (SMSFs) are established by members younger than age 45.

So why the shift?

Easing the sting of fees

SMSFs have always provided greater control and flexibility to members, but fees have sometimes been a deterrent to people with balances lower than $200,000.

The increase in average fees is due to the average balance sitting at $1,050,000* with advisers and accountants using a fee structure at usually 1% of the balance. If you have less than $200,000 in your account, this can be a big chunk of your savings and the reason lots have shied from taking the plunge into the SMSF world. But while fees within SMSFs have increased in recent times, the set up costs have decreased – making it a more accessible option for investors.

As more Australians take an interest in what is required to run a successful superannuation fund, they are shopping around and demanding more cost efficient options to keep fees down. These days, SMSF administrators are coming to the party and providing cost effective SMSF options with set up costs sitting at around $799. With those kinds of figures, SMSFs are not as out of reach for Gen X and Gen Y as they once were.

*As of December 2015

Bricks and mortar

Traditionally, Australians have always considered bricks and mortar a ‘safer bet’ than the share market and as such, the desire to invest in property is another motive that is enticing people under 45 to move towards an SMSF.

Less than ten years after the global financial crisis (GFC), uncertain global markets continue to cause major concerns so it’s common to find people seeking investments that they can touch and feel. The projected population growth in Australia’s major metropolises has also increased the demand for housing – a trend that investors can capitalise on.

With interest rates at record lows and real estate still producing fairly positive returns, Australians in their late 20s-40s are looking to move their retirement funds into bricks and mortar – something they can do through their SMSF.

Keeping a finger on the pulse

Finally, visibility and trust within a superannuation fund has become much more important to younger Australians. In the wake of the GFC, many were shocked when they received their superannuation statements or spoke to their adviser to realise the average fund balance had fallen by more than 17%.

Within an SMSF, people feel they have more control and visibility on the investments they elect, rather than entrusting the direction of their balance to their fund’s administrators. This hands-on approach that’s encouraged in an SMSF ensures highs and lows won’t come as such a shock, and investors can feel more involved in the growth of their wealth.

 

If you are keen to explore your options within an SMSF, call 1300 726 082 to speak to one of our financial advisers. Our team of accountants can also help with the management of the fund and handle all the administration on your behalf, keeping everything in-house and centralised.

 

Stats taken from ‘SMSFs winning over younger Australians’, Financial Standard, 23 March 2016

 

Dislaimer: John Hopkins Financial Services Pty Ltd is a Corporate Representative of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL: 326450. 

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

Know Your Window; Understanding the ASX Market

Posted on by daniel-admin

Many investors are aware that the Australian Securities Exchange (ASX) commences trading at 10am and ceases trading at 4pm, but did you know that there are small windows on either side of these times during which anyone can enter buy or sell orders in the market? The ASX goes through a number of phases on any trading day, and there are trading periods that exist beyond the official ‘opening’ and ‘closing’ times of the market.

Securities open in five groups according to the starting letter of their ASX Code:

Group Market Open ASX Code Starting With
Group 1 10:00:00am +/- 15 seconds 0-9 and A-B
Group 2 10:00:00am +/- 15 seconds C-F
Group 3 10:00:00am +/- 15 seconds G-M
Group 4 10:00:00am +/- 15 seconds N-R
Group 5 10:00:00am +/- 15 seconds S-Z

The time is randomly generated by ASX Trade and occurs up to 15 seconds on either side of the times given above, i.e. any group may open at any time between 9:59.45 am and 10:00:15am.

During the pre-open phase (from 7am to 10am), the overlapping bids and offers which exist within the market are matched off against each other resulting in an official ‘auction’ price, which is the price at which the stock opens. What this means is that investors can enter orders online which are placed in a queue according to price-time priority and will not trade until the markets open.

Between 4:00pm and 4:10pm the market is placed in Pre Closing Single Price Auction, (aka ‘Pre-CSPA’). Trading stops and stockbrokers enter change and cancel orders in preparation for the market closing.

Knowing when the market opens is one thing, but knowing when the right time to buy stocks is another. In general terms, many investors in the share market are drawn to the possibility of long-term wealth building through capital growth and the ability to earn dividend income. However, there are others who are drawn to the possibility of quick, large profits through more speculative trading activities, such as:

  • buying ‘penny dreadful’ (cheap stocks with high leveraged aspects),
  • buying stocks on ‘hot tips’ or rumours, or
  • day trading or speculation (i.e. buying and selling within the same day, usually with large amounts of capital, locking in profits from relatively small price movements).

Australian shares are characterised by generally high liquidity and relatively high volatility, with prices affected by both domestic and overseas influences. With this in mind, there is no real ‘right’ time to buy into a stock. Unless of course, you own a crystal ball and can see the future!

Instead, investors should look to diversification within an investment portfolio. Ensuring portfolios are well diversified at all levels of a portfolio should help ensure investors reach their investment goals in the least volatile manner. Diversification is crucial in reducing the likelihood of underperforming stocks and decreasing risk and volatility.

Whether you’re looking for capital gain or consistent income through dividends, diversifying your portfolio across different stocks as well as sectors and industries is a prudent way of managing your share portfolio.

If you would like to find out more about the share market and advice on how to invest, speak with one of our financial planners today on 1300 726 082.

 

 

 

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

 

The birds, the bees . . . and the ATO!?

Posted on by daniel-admin

The Australian Taxation Office (ATO) is all about sharing, caring and true love . . . oh didn’t you know? Now more than ever, lodging your tax returns has become a family affair.  

Your relationship and family circumstance affects the calculation of the Medicare levy surcharge, private health insurance rebate and other government entitlements. Thus, reporting certain details about your spouse and dependents is now required. Below is some of the information that you may need to supply to the ATO as your relationship and family situation change.

What’s in a name?

First comes love, then comes marriage, then comes . . . well, for the traditional amongst us, the joyous task of updating your name with numerous organisations. Never fear my friends, the fun isn’t over, the ATO also needs to be updated before your next tax return is lodged.

The quickest way to update your name with the ATO is over the phone. In order to do this you will need to have handy either your Australian marriage certificate or Australian change of name certificate.If you would like assistance, you may provide a copy of your certificate to a member of The Hopkins Group accounting team who will be delighted to contact the ATO on your behalf.

Are you going steady?

If you had a spouse during the financial year, it is necessary to include in your tax return their name, date of birth, and dates for which they were your spouse if not the full year. You must also include your spouse’s taxable income, reportable fringe benefits, and child support your spouse paid (see the ATO website for full list).

So who actually qualifies as your spouse? The ATO defines your ‘spouse’ to include another person who you are in a relationship with that was registered under a state or territory law, or although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

Babies!

Blessed with a brand new bundle of joy? It is required that the number of dependent children you have during the financial year be reported in your tax return. If a new addition has arrived since you lodged you last tax return, you need to inform your accountant by providing them with the baby’s name and date of birth. This information allows the ATO to calculate the correct private health rebate amount you are eligible to receive, calculate the correct Medicare levy surcharge if applicable, and assess your eligibility for other entitlements which may benefit your family.

The ATO defines a ‘dependent child’ as your child who is under 21 years old, or 21 to 24 years old and a full-time student regardless of their income. The child must be an Australian resident and you must have contributed to their maintenance.

Empty nesters

Equally important as adding the number of dependents to your return, it is also important that the number be reduced as children become adults and begin to support themselves. If your child has finished their education and become independent financially, it is important to let your accountant know this change has occurred so that the correct number of dependants continues to be reported.

If you would like to discuss any of the above information please don’t hesitate to contact one of our accountants at The Hopkins Group on 1300 726 082 or info@thehopkinsgroup.com.au

Reference: www.ato.gov.au

Negative Gearing: An In-Depth Discussion

Posted on by daniel-admin

Negative gearing is hot on the agenda in Australia at the moment. From the water cooler to the halls of Parliament, it’s the talk of the town.

The Hopkins Group Executive Chairman John Hopkins, Director of Accounting Rachel Williams and Head of Advice Shane Light discuss negative gearing in Australia, how it works, who it benefits, and how Labor’s proposed federal changes could create a distorted housing market.

The team also walks us through the state of Australia’s current housing market, how it compares to 30 years ago and what to expect in the near future.

To find out where you stand with negative gearing, contact The Hopkins Group on 1300 726 082.

 

A New Address. But the Same Approach.

Posted on by daniel-admin

The Hopkins Group prides itself on offering all the services you might need in order to take control of your financial future, all in one place.

Since our inception in 1980, we’ve had different names, different faces and different offices. Come March 2016, it’s time to mix things up again.

This year, The Hopkins Group is writing a new chapter in its rich history and moving to a new office space to better serve our clients’ needs and keep up with the growth of the company.

Our new premises are tailored for dynamic, productive and engaging interactions with our clients, suppliers and partners and we look forward to welcoming you to our exciting new workspace at 500 Collins Street – just around the corner from our old William Street premises.

The iconic location of 500 Collins Street will be an exciting new base for staff and clients alike. The building is a rejuvenated A Grade property icon, setting a new benchmark for environmental sustainability. While clients will benefit from a welcoming reception area and improved meeting rooms, staff can also look forward to state of the art amenities to ensure their time spent at work is enjoyable.

At the entrance to our building, you’ll find MJ Bale and Flight Centre. Our co-tenants include the Heart Foundation and Czech Republic Consulate and we’re just across the road from the Rialto Towers (and conveniently, Haigh’s Chocolates!).

Features of 500 Collins Street include:

  • New destination control lifts
  • First class change room and locker facilities
  • Virtual concierge
  • Extensive food and retail amenity
  • Direct access to public transport and major arterials.

The offices have been redesigned with the help of ODC Design and they reflect the contemporary style of the rebrand which was rolled out last year when John Hopkins Group became The Hopkins Group.

The Hopkins Group is taking over the whole of Level 23, along with its ancillary businesses Lantern Property Partners and bdhSterling. To reach us, you’ll need to dial our floor number (23) into one of the touch pads at the lift lobby which will direct you which lift to hop into for easy access direct to our floor. The 11, 12, 48 and 109 trams all stop just outside our office on Collins Street and we’re a short walk to Southern Cross station, with Flinders Street and Flagstaff train stations just around the corner.

Click here for a map to help you find our new office.

History of The Hopkins Group office locations

1980 – The first premise of the business was on Queens Road, Melbourne (in the St Kilda Road precinct) where the organisation began offering property investment advice based on John’s belief that “if the property isn’t right for the client, we won’t recommend it.”

1980s – The office was relocated to a new address on St Kilda Road to accommodate growing staff numbers and business expansion.

2004 – John Hopkins recognised that in order to create a truly holistic investment group, he needed to expand the service offering of his organisation. During this time Michael Williams (who was managing a successful financial planning organisation) was coincidently looking to add a dedicated property investment advisory arm to his business. And so the two joined forces, creating the financial service investment house John originally foresaw and moving to the Group’s current location on William Street in Melbourne CBD.

2016 – The Hopkins Group takes the next step in its brand story and moves to a larger office so that all staff can work under the one roof on Level 23 at 500 Collins Street and continue to provide quality service to its clients, all in one place.

Click here for a full history of The Hopkins Group.

New address details

The Hopkins Group will be moving offices on Friday 18 March 2016 with clients, suppliers and partners welcome to visit us in our new space from Monday 21 March 2016.

The Hopkins Group
Level 23, 500 Collins Street
GPO Box 4347
MELBOURNE VIC 3000
Ph: 1300 726 082
thehopkinsgroup.com.au
info@thehopkinsgroup.com.au

If you have any questions about our office move, please call Reception on 1300 726 082 or contact your adviser directly.

Urgent Repairs and the Changes Made to the Residential Tenancies Act

Posted on by daniel-admin

When disaster strikes at a rental property, an urgent repair may be needed. But what if the landlord is uncontactable and you need to repair a severely broken toilet system or dangerous electrical fault? In cases such as these, the Victorian Residential Tenancies Act gives tenants and managing agents the authority to carry out urgent repairs up to $1,800, without the landlord’s authority. This number has increased from the $1,000 allowed previously.

The change comes as Consumer Affairs Victoria and the Real Estate Institute of Victoria have realised that with the increase in the cost of living, the cost of repairs and maintenance has also increased. This means that in some cases, the previous cap of $1,000 is not enough to cover repairs that are considered urgent so an increase was necessary to ensure prompt response.

What is an urgent repair?

It is important to note that only certain items are considered “urgent repairs” under the Victorian Residential Tenancies Act and there are rules around when these repairs can be carried out without an owner’s authority. The Act is very clear with what it considers an urgent repair, and these items are:

  • a burst water service
  • blocked or broken toilet system
  • serious roof leak
  • gas leak
  • dangerous electrical fault
  • flooding or serious flood damage
  • serious storm or fire damage
  • failure or breakdown of any essential service or appliance provided by a landlord or agent for hot water, water, cooking, heating, or laundering
  • failure or breakdown of the gas, electricity or water supply
  • any fault or damage in the premises that makes the premises unsafe or insecure
  • an appliance, fitting or fixture that is not working properly and causes a substantial amount of water to be wasted, or
  • a serious fault in a lift or staircase.

What happens once an urgent repair has been reported?

Once you (the tenant) report an urgent repair to your agent, the property manager will call the landlord advising of the issue and the options which are available to fix the problem. Property managers should work with their tenants to ensure that the issue is rectified in a timely manner so that you are not forced to take matters into your own hands and engage tradesmen yourself.

In situations where the landlord is not contactable, your property manager will need to make an executive decision and have urgent works approved. Your property manager will only do this in crisis situations – they are trained to know how to handle an urgent maintenance situation should it arise, to ensure that legislation is complied with and potential compensation claims are avoided.

While it is very rare that you would not be able to contact your property manager to report urgent repairs, missed connections can happen outside of business hours, during the Christmas period and on public holidays. In these cases, tenants can arrange works without permission (up to a value of $1, 800) if they are unable to contact their property manager in a crisis.

In an emergency, tenants of The Hopkins Group should always try and call their property manager. Our  property managers try to be contactable for urgent repairs, but sometimes issues arise when least expected. If you cannot get hold of your property manager in an emergency, tenants are given the authority to complete the repair within the threshold without the approval of their property manager and/or landlord.

What is the maximum repair cost a landlord will be required to reimburse for an urgent repair undertaken without authority?

The maximum amount that a landlord or property owner will have to reimburse a tenant or resident who pays for urgent repairs is $1800, including GST. This maximum will also apply when a tenant or resident seeks a Victorian Civil and Administrative Tribunal order for urgent repairs.

Who can I call if I have any questions?

Our property management team is available to answer any questions you might have about urgent repairs and changes made to the Residential Tenancies Act. Please call 1300 726 082 to speak with one of property managers today, or email your property manager directly.

Get Your Motor Running – Changes to Motor Vehicle Tax Deductions

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If you have ever tried to claim your motor vehicle as work-related expense at tax time, you may recall that in previous financial years there were three ways to claim the tax deduction for your motor vehicle. These were:

  • the kilometre method;
  • the 12 per cent of original cost method; or
  • the one-third of running costs method depends on which method that would give you the best deduction.

However on 1 July 2015, the Australian Tax Office (ATO) removed the old 12 per cent of original cost and one-third of running costs methods. There are now only two methods for calculating your car expenses:

  • the ‘cents per kilometre’ method; and
  • the ‘log book’ method.

How the Cents per Kilometre Method Works

Under the cents per kilometre method, you can calculate how much you can claim by multiplying the business kilometres you travelled (up to a maximum 5,000 km), by a cents per kilometre rate.

For the 2015 financial year, there were three rates available depending on your car’s engine capacity, with the maximum rate being 77 cents per kilometre. From 1 July 2015, the ATO have simplified the cents per kilometre method to a single rate of 66 cents per kilmetre no matter what your vehicle’s engine capacity is.

This is unfortunate news for those who use this method with their larger sized car as the rate is no longer determined by your car’s engine capacity; the flat rate does not account for higher costs required to run a large car.

If you’re using this method, you only have to show how you calculated the work related kilometres. Diary records will be sufficient.

Example

Jane travelled 6,000 business kilometres during the income year. Jane worked out she could only claim up to 5,000 business kilometres using the cents per kilometre method, as follows:

5,000 km x $0.66 per km = $3,300

How the Log Book Method Works

This method is most advantageous if you travel a significant number of kilometres for work purposes during the financial year. Using the logbook method, your tax deduction claim is based on your car’s business use percentage. Your business use percentage is the percentage of kilometres you travel in your car for business related purposes.

To work out the business percentage, you will need to keep a logbook for your car for a “typical” 12 week period. These must be 12 consecutive weeks (ie. 12 weeks in a row), and must include every trip you take during that period, not just your business related trips.

Your logbook must include the following detail:

At each entry:

  • the date the journey began and the date it ended for each day if journey longer than a day;
  • the odometer reading at the start and end of the journey;
  • the number of kilometres the car travelled on the journey;
  • the reason for the journey.

In each log book:

  • the period the log book begins and ends;
  • the odometer readings at the start and end of the log book period;
  • the total kilometres travelled during the log book period;
  • the business kilometres;
  • the percentage of total kilometres that were business during the period.

Example

At the end of the income year, Jane’s logbook shows she travelled a total of 11,000 kilometres, of which 6,600 were for business.

To work out the percentage the car was used for business purposes, Jade made the following calculation:

6,600/11,000 × 100 = 60%

Jane’s total expenses, including depreciation, are $9,000 for the income year. To work out how much he could claim, Jane completed the following calculation:

$9,000 × 60% = $5,400

The changes made by the ATO hope to modernise the car expense deduction rules, and simplify the way taxpayers make these types of deductions. If you intend to claim motor vehicle expenses in your future tax returns and are unsure of what will be the best method for you, please don’t hesitate to contact our accounting team on 1300 726 082.

—

Kezia Eman is an accountant with The Hopkins Group (John Hopkins Accounting Pty Ltd). This blog post contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs.

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The Hopkins Group

Street Address

Level 23, 500 Collins Street, Melbourne, VIC 3001

Postal Address

GPO Box 4347, Melbourne, VIC 3001

Office Hours

8:30am - 5:00pmMonday - Friday (after hours by appointment)
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