Tony skinner 00:02
Hi, and welcome to the podcast for www.podcastmybusiness.com.au. And today we have Frank from www.deductyourhome.com.au. How are you, Frank?
Pretty good, Tony. Very well, thank you and you?
Tony skinner 00:17
Yeah, look, I’m good. I’m good. It’s raining here in Sydney. I know you’re in Perth. I think you’ve got rain over there as well.
No sunny and 30. Today couldn’t you come over now.
Tony skinner 00:31
Well, you know what, I don’t think I want to. If you guys don’t want us, then why would I go?
Who said we don’t want you.
Tony skinner 00:41
Your wonderful premiere? That was so scared. He wouldn’t mean Oh, okay. One premiere in one state that had something like 14 days ago.
Well, I don’t speak for the premier. But most of us would welcome you with open arms.
Tony skinner 00:58
Good on you. Okay, well, there we go. We know he’s a war. So what we’re talking about today is lots of people are now working from home. People are waiting for home, on and off for years like me. And the good old ita makes things entertaining, shall we say about trying to deduct what you can and can’t do from home? I got audited quite a few years ago, and I was working for an employer. And yeah, I said, Well, I was working from home legitimately and I you made it to all your capital gains tax and blah, blah, blah, they make it so hard. So the ATO is not there to be your friend. But you are they’re here to be our friend.
I think you’ve nailed it. Absolutely. Now, the ATO, they’ve actually wear two hats, their primary role is to collect the taxes so that the government has revenue, so it can do its thing. But they’re also supposed to administer the taxation, superannuation systems. And it’s a bit of a conflict from time to time, because they’re not there, they are not there to put in loads of time and energy to help us individuals and business owners to figure out what’s best for us. So it’s really up to us to figure it out for ourselves. And it’s a self assessment assessment system here, as we all know, so you put your tax return in on face value, they just believe this. But then if there’s an audit, they’ll go through with a fine tooth comb. And if it doesn’t add up to their way of thinking, you’re in all sorts of strife. And they’re not going to make it easy for you at all. Yeah, it’s
Tony skinner 02:38
interesting how you say their way of thinking because they said to me all, we need a copy of your receipts. And so I sent them his bag full of receipts, and I went well, no, we didn’t mean the actual receipts. Okay, well, what do you want?
Well, the other thing is the the ATO has something has a very strong power, and it comes down to the boy who listens under the taxation administration act of 1953. Where we are deemed wrong if they say so. So, you know, in criminal law attorney, there’s a presumption of innocence unless proven guilty in a court of law. Well, with tax law, it’s the opposite. And if the Commissioner of taxation gets out of bed one day and says You owe me 100 grand, guess what, you owe him? 100 grand? Because he said, so you have to prove that, you are right. He doesn’t have to prove that he is right. So the burden of proof is on the taxpayer. If you haven’t got proof, then his position is what is what sticks. And it’s his view of the tax law that you have to convince is wrong if it goes to court.
Tony skinner 04:01
Yeah, and I know that they were singling out and picking on smaller and micro businesses and you know I think a lot of people that will this is directed at for the Vectra home is that level of business. So how do we legitimately and successfully get our remains because I think it was a Kerry Packer that said every Australia’s responsibility is only to pay as much tax as they have to.
Not a penny more well not not verbatim but close enough get is basically saying if you’re paying any more texting you need to you got rocks in your head nice, right? We should all pay our fair share, and no more. So what did what did up to your home will do is it will help people legitimately 100% legally convert their homes, normal expenses or a good portion of them into business expenses, but you’ve got to run a business from your home to do it. And it doesn’t matter what it is pick a pick a letter out the alphabet and run a business. If it’s if it’s not just a hobby or a pastime, it’s a failing business, then the system and all the laws and the rules and regulations will support you if you do it properly. And it makes a big, big difference. We’re talking many 10s of 1000s of years per year in deductions if you do it, right.
Tony skinner 05:22
Yeah, it’s interesting, I go to my accountant, and I mentioned different things, and I go when I’m working from home and whatever. And okay, we claim the color, because that is a tip, the only good tip I got from the ATO auditor was register your car as a business in your registration. And we weren’t asked you about. So there we go.
Pretty simple. Fair enough. So I don’t I don’t know who your account is. I’m an accountant. I run an accounting and tax practice. So I’m, as your accountant ever said to you, you should or shouldn’t, for example, claim mortgage interest and giving you a reason as to why you should or shouldn’t. Do you’ve never had the trip?
Tony skinner 06:04
Not About That specifically, no.
Well, I find that interesting. And in fact, most don’t, because they don’t understand it. And those who do, they will usually offer up a bit of a furphy along the lines of Yeah, well, you can claim your mortgage interest, but I wouldn’t recommend it. Because otherwise, you’ll get slugged with capital gains tax at the other end when you sell your home. And, and in fact, they’re quite correct, you will. But that’s not the end of it. There’s a little something called the capital gains tax concessions for small business owners, the Howard government brought them in in 2000.
So for the last 20 years, we’ve all had an opportunity to claim what are called occupancy expenses. And these are the ones Tony that exists regardless of whether or not you’re using your home to produce income. So you’ve still got to pay the council rates, the water rates, the repairs, and maintenance, interest or rent, if you’re renting, these things are there, no matter what, we all need a roof over our head one way or another. So if you if you can genuinely run a business, and it’s really easy for me to find 30, 40, 50, 60, 70% of people’s expenses surrounding their home as tax deductions. I do it routinely. If they can become business expenses, when you sell your house, cross your fingers, it’s gone up in value and you make you make some good coin out of it. The only reason you’ll be paying capital gains tax is because you haven’t got your head screwed on. Yes, your home becomes a capital gains tax asset. But using those provisions that I mentioned a moment ago, the capital gains tax concessions for small business owners. You don’t need to pay a penny in tax. It would be it would only be because you missed managed your opportunity.
Tony skinner 07:55
Right. Okay. So for example, I have my home, I pay a mortgage and what have you. And of course, I’m still paying a large amount of interest because of still away from retirement and what have you. Yeah, so again, lots of people are going to be in a same sort of scenario. And they’ve been informed Well, we got capital gains tax. And, again, when I got audited, it was where you get capital gains tax, but it’s so complicated. We can’t even predict or forecast what you would own or have liable for for capital gains tax. So make your life easier, just don’t bother claiming.
Let’s just complete crap. Can I say that?
Tony skinner 08:40
Yeah. Well, it was crap advice from the ATO. What a surprise.
Yeah, well, look, I’ve seen some, some pretty, woeful comments on the ATO website. masquerading as advice on my job is not to bash your bag, the CEO, not they do some great, they do great work here and there. But every now and again, then they drop the ball. And in this area, in my view, they don’t seem to have it together particularly well. And that’s okay, because it’s not their job to give outstanding tax advice. That’s the text professions job. But unfortunately, the text profession itself hasn’t done a particularly outstanding job either. Now, that’s my personal view. And it’s been formed from 20 years of specializing in this space. And I don’t know anybody else who specializes in it. So my word has probably got a little bit of weight. I’d like to think after all this time.
Tony skinner 09:35
Okay, so if we’re looking at it now, what, would be the number one thing that I could do today? Yeah, that would help me to pay less tax on my tax bill, being a bog standard mortgage payer.
Okay, now, are we presuming that you already have a home based business, Tony, or it was
Tony skinner 10:02
five years, so yes, okay.
All right. Well, if there’s an area in your home that can pass the Scratch and sniff test, it’s typically called the interest deductibility test, what that means is, it’s now a place of business. So you, if you were inside that area, and it could be inside or outside of the home, it could even be a bit of yard space. If it looks and feels like a place of business and can’t be readily converted to private use, then it’s a place of business. If you then work out proportionately, what the percentage of the property is, that’s got those characteristics, then that percentage can be applied to all of those occupancy expenses I mentioned earlier. So the simple take, the simple takeaway is, if you’ve got bookwork, to do, don’t do it at the kitchen table, or sitting on your lounge, because the primary purpose of those spaces to eat and to relax and watch Telly etc, not to do your book work. So you wouldn’t be allowed to partially claim the kitchen table as a place of business because it isn’t, it’s your kitchen table.
But if you had a dedicated office in your home, or dedicated workshop, or both, if you had a client waiting room, you had client car parking, you had a client toilet, and washroom set aside because you had more than one, these areas could be summed together and allocated as a proportion of the overall property. And that’s how you can get very significant business use percentages.
Tony skinner 11:47
Right. Okay, that’s interesting, because I know lots of people will have had to work from home. Let’s face it with COVID. I’m looking forward to the ATO going through everybody’s claim from working from home and scratching themselves and going well, what do we do? But safe, I push it off a part of my lounge room as an example. And I plugged up a desk, and a monitor, and my laptop and a desk chair. And that was taking up 20% of the lounge room. Would that pass the Scratch and sniff test?
Maybe? How’s that for a definitive answer? Maybe? Look, it’s not ideal, but it’s doable, what you what you need to be able to show is delineation of sorts. So if you could draw a line an invisible line across the room, where part of the room the character had changed, that would be okay. But if you had a personal non business items in that same part of the room, so it was a bit of a mishmash. It wouldn’t pass the test, strictly speaking. And that’s not to say the ATO gonna come around and look inside your lounge room. Because as I said, it’s a self assessment system. When you do your tax return, you will get your deductions you put it in, it’ll go through. But if for some reason that they decide to audit you, they’re going to ask you potentially, for proof of the position you adopted in your tax return. In other words, make me believe like, I’m the auditor, I want you to convince me that deduction is genuine. So what you would need to show I would think would be photos and video, evidence, hard evidence that 20% of the lounge room wasn’t used for watching Netflix, binge and watching reruns of Star Trek. So if you’ve got your desk and everything there, you also wouldn’t want it to be used for lots of personal stuff at that desk.
So you want to have the best thing is photos and screenshots of your computer at taking it. I tell my clients every three months, take a fresh set of photos, showing that there’s lots of work on your desk that’s to do with work. Oh, by the way, it can’t be work as in this is my job. Because with all these people working from home, that’s because their employers have have okayed it. That doesn’t make it a business. Working from home does not give you any legal right to claim the big expenses like your water rates, your council rates and your mortgage interest and all your rent. That can only be achieved if you actually are running a business under an ABN and you’re doing a whole range of things that people in business ordinarily do.
Tony skinner 14:46
Now, if only I knew someone that could give me some help and advice and for the listeners to be in that sort of scenario. Who could that possibly be frank?
Well, let me think. I know a guy over in Perth.
Tony skinner 15:01
Coincidently, name, Frank is well,
funny that Yeah, man, he seems to have his head around it pretty well. Look, there’s a lot of stuff to consider. And for the unwary, it is a minefield, what I do is I try to take a very simple approach and not complicated too much for people otherwise, their eyes will roll back. But it can be put to people very simply and succinctly. And that’s the trick making the complex simple.
Tony skinner 15:36
Excellent. Okay. And we’re going to make it really simple because people have jumped on your website. And there’s plenty of links there to the free report. Yep. To find out, what is the free report cover.
The free report gives a lot of information on why this is a great thing to be looking at, and gives you a an ability to really start what I call dream building. Because it’s not just about what you’re up to now in your life is a combination of way of being and that which got you to where you are today, what deduct your home can do is it can actually create a new future for you. And think about it Tony if, for example, a significant portion of your home’s expenses were now business expenses supported by the tax system, you might think twice about buying the cheaper option, you might look at more expensive, higher quality things. And examples might be the furniture that you place in those businesses series. If you’re doing renovations or repairs, will you put in the cheap flooring, or you put the good stuff in knowing that it’s now a business expense. If you decide you want to put solar panels on your roof, and let’s say 50% of the home is place of business, or 50% of the cost of the solar panels can now be included in a depreciation schedule. All you need a new fence or whatever. The expenses don’t necessarily have to relate to the rooms in question, or the spaces in question.
Or you might decide, I love my street. It’s a great house, but it’s a bit small, I’d like to extend it where you can go and do a large home extension. Or you may decide the grass is definitely greener down the road. So you put a for sale sign and you move and you buy something with potentially quite a lot more. What if the entire amount of additional borrowings and some or all of your existing borings became fully tax deductible, it’s not hard to do, when you know what you’re doing, and you know what to look for. So it’s not, it’s not just about saving tax, it’s about living better, and creating wealth for your future. Because if you’re living in a house worth, say, $600,000, and using the deduct your home principals, you go into a house worth 900,000, for example, and you borrow an extra 300 K, if that 300 K is deductible, the net cost of servicing the loan may not be much more than what you’re paying now. But now you’re living in 900 k land, which is so much nicer than 600 k land, you come back in 2030 years, your house is going to be worth a hell of a lot more than the old one. And remembering what I said earlier, why would you pay any tax at the other end? If if you know what you’re doing and you know how to follow the rules. So you could have a completely net of tax windfall at the other end of your life now your retirement sorted.
Tony skinner 18:49
Fantastic. And of course, we can tell you from perfectly You said you said a house for $600,000 in Sydney, no such thing.
Well, I’m bearing in mind some people in Adelaide tazzy, you know, Brizzy? Melbourne and Sydney in particular. Yeah, I don’t think you get a one bedroom apartment for 600. We’re
Tony skinner 19:11
not in Sydney. I don’t think I think you might just scrape one in. But I think Yeah, which is like, Oh my god, how would you write off a studio and all you’ve got is one room and a kitchen.
And those people in Sydney who are paying astronomical prices and huge mortgages and they will do very well to download that free report. I can assure you.
Tony skinner 19:34
Absolutely. And talking of that. So anything else you’d like to add?
Really, it’s Look, it’s all it’s all about having a vision for your future and having a really strong why why do I want to do this because I’d like to think because you want to live better. You want to be happier. It’s really not about money. It’s about happiness and choice when you’re living in the best home possible. And that’s creating wealth at the same time for you while you sleep over the years. The first thing is you see when you wake up in the morning is your house. The last thing you see at night before you go to sleep is your house. It’s the biggest physical object in your life. Typically. It’s a sign of status and wealth to some people. It’s the family home, it’s all of those things. For 25 years, I was a financial planner. And I used to talk to people about creating wealth, but it was always using structured products, you know, managed funds and this and that, and the other, there was no fun in it. Nobody, you can’t take your share portfolio out for a spin on the weekend, you can’t sleep overnight in your government bonds. You can’t go for a dip in your managed fund. But you can do all of that in a beautiful home, you know. So it’s lifestyle, it allows you to build a business live on your own terms. And to go through life with that control and positivity as to your your wealth and your security. It does all of those things. Yeah,
Tony skinner 21:02
absolutely great. Okay. All right. No worries. Look, thanks very much for that Frank. that www.deductyourhome.com.au. yeah at the end of the free report, improve your lifestyle.
Hang on. Good on your time. Thank you.