Property Hub - Investment Insights & Inspiration - Realty Talk: Taxing Times!

Episode Date: June 24, 2023

Given the focus of this week’s show it’s easy to see that we’re living in taxing times! Property Analyst Pete Wargent kicks things off with Bushy by unpacking the Victorian government’s recent land tax changes and how they will impact you. With upwards of 35% of rental properties being potentially contaminated by illicit substances, Kevin then talks with David Pie from Australian Meth Alerts to reveal what this may mean to you. And to close out the show, Bushy catches up with leading property accountant Tony Dutton reveals what the Tax Office’s open access to your banking information and crackdown on property investors means to you. RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. NEW – Join the Property Hub community on Substack! Sign up to get Australian property news, opinion and episodes in your inbox: https://propertyhubau.substack.com/ Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi and welcome to Realty Talk, your property hub's go-to place for property investment insights, inspiration and stories from Australia's top property experts, leaders and analysts. I'm Bushy Martin from Know How Property Finance, and given the focus of this week's show, it's easy to see that we're actually living in pretty taxing times. Property analyst Pete Wardgett kinks things off by unpacking the Victorian Government's recent land tax changes and how they'll impact you and the property in the Garden State. With upwards of 35% of potential rental properties being contaminated by illicit substances,

my off-sider, Kevin Turner, then talks with David Pye from Australian Meth Alerts to reveal what this may mean to you and your property. And to close out the show, leading property accountant Tony Dutton from Concept Accountants reveals what the tax office's open access to your banking information and the crackdown on property investors means to you. Now, before we get underway, I need your help by taking a couple of seconds now to subscribe to the Property Hub

wherever you're enjoying the show to ensure that we continue to attract the best of the best guests so we can keep giving you the winning edge. We've got lots of insights to share, so let's get underway. Successful property investment is a game of finance. Do you have the right team and the right game plan?

Realty Talk is brought to you by KnowHow Property. More than mortgage brokers, Bushy Martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs, tax, risk and stress while increasing your capacity for growth. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million in property wealth.

so get set to live more work less and live your legacy want to know how to invest in your freedom visit knowhowproperty.com.au victorian state labour government's recent budget has introduced a raft of increased taxes on businesses along with land tax reforms as a means of recouping their 31 and a half billion dollar expenditure that they incurred during the covid pandemic With changes coming into effect from January 2024 and expected to last for about 10 years until mid-2033, this tax impost is estimated to affect about 860,000 Victorian investors and recoup about $4.7 billion in just four years. So exactly what are the proposed land tax changes and what impact will they have on you, property owners and property investment in general? To unpack all of this so that you can make some sense of it, we're joined by a regular guest and industry veteran, Pete Warder, one of Australia's leading buyers, agents, and

real estate experts, as well as being a multiple published author and all-round property and investment guru. So welcome back to the show, Pete. Thanks, Bush. An industry veteran these days, that came around quick. I used to be a promising youngster, and now I'm a veteran, so life comes at you fast, as they say. Mate, I'm an old and decrepit senior, mate.

So you've still got some distance to run yet. Mate, digging into this interesting subject, and we're seeing a lot of this stuff happening with various state and federal governments in recent times, sort of knee-jerk reactions to the exercise. But to kick things off, mate, what are the changes that are being made to Victorian land tax? And probably just as importantly, why are they being made as you say?

Well, the reason is, fair enough, it's a state budget drowning in debt. It's been an issue for some years. New South Wales tackled similar challenges with asset sales. In Victoria, a state which had very long lockdowns, as you'd recall, they're looking to recoup some of the debts and deficits with an increase to land tax rates. So that's, as you mentioned, from 1 January 2024 is the proposal. And, yeah, there's a couple of things coming down the chute there. So increased land taxes for some existing owners, but also they're broadening the scope. So it will capture more people, particularly people with investment properties and holiday homes. Yeah, it's certainly a bit of a tax grab. That's clear.

So what will this mean for both homeowners and residential property investors then? So first, there's two things. There's an increase to land tax rates. So 0.1% for people with land of a taxable value over $300,000 or a bit less if you're in a trust ownership structure. But there's also additional fixed charges for people with a taxable value from $50,000 upwards. So there's a whole load of investors there who previously weren't captured and now will be paying land tax. So there's an increase in the land tax rate, but also more people will be paying fixed charges as well. And a lot of investors who previously had no land tax will be paying it for the first time. So in terms of what it means for the market, there's a bit of a cyclical thing going on.

If you've got a very tight rental market like you have in Melbourne and Victoria at the moment, then those costs will be passed on to renters. I think at another stage in the cycle, that's harder for landlords to do. But as we all know, we've got record population growth at the moment and there was absolutely nothing in the budget to boost supply. So I think you could probably deduce from that the rents are going to go up, especially in Melbourne, I think, with international students and migrants coming back and a very tight rental market. Yeah, very interesting exercises there. I love your thoughts on, given that there's a lot more property investors now being borderless in their approach and looking beyond their backyard to opportunities in the state, what are property investors likely to do as a result of this when it comes to Victoria? I think, I mean, these changes haven't even come in yet. We've already had clients raising this subject for discussion. I think some existing investors will look to sell. I think we've had rising mortgage rates. We've seen changes to tenancy rules, which make life a bit harder for landlords. and now we've got rising land taxes so some existing investors may sell but I think for

prospective or new investors I think a lot will opt to invest in other states notably Queensland where prices are kind of equivalent but also some of the other states as well and I think some of the other investors may just look to increase their rents to offset the rising land taxes so as you mentioned these days there's more people invest with a borderless mentality So, yeah, it just makes Victoria less competitive in that respect now. And of all the states, Victoria has the largest population growth. So it's pretty tough to see how the rental supply is going to keep pace. Absolutely.

So do you see that flowing on into the Victorian property market in terms of what people will do as far as location, price points and property types are concerned? Or is that perhaps taking it a bit too far? Yeah, I think so. I think, I mean, generally rising rents will tilt the buy versus rent equation and it tilts towards buying, even though mortgage rates have gone up. People don't like seeing their rents going up 20, 25. We've seen in some cases rents going up even more than 25%. And at the moment, there's no real sign of that changing.

So you'd probably see more competition at lower price points. And I just think it's not a comfortable place to be as a tenant at the moment. So, yeah, there's some talk about whether there might be other forms of housing supply coming, things like build to rent and so on. But it's all so far down the track that I think a lot of tenants are just sick of rising rents, can't find places to rent. I think one other thing you'll see as well is more people staying at home for longer, more people buddying up or getting a flatmate. So you probably see the number of persons per dwelling will actually start to rise again, having fallen through the pandemic. Yeah, good call. Well, really appreciate you coming on to dig into the details of this, Pete.

And as always, thanks for your generous time on the show today. Pleasure. Thanks, Bushy. Thanks, Pete. Well, I don't know about you, but from where I sit, this is all looking like another knee-jerk, reactive and money-grubbing government initiative. that has all the short-sighted hallmarks of cutting off your nose to spite your face by driving investors potentially away from Victoria and pushing existing investors to sell their properties

and further worsen rental housing supply and the rental crisis. When are governments going to lift their sights and start treating causes rather than attacking symptoms with half-baked remedies that just make matters worse? Keep watching your Property Hub's go-to place for all things property here on Realty Talk. property deductions can save you thousands of dollars each year to make sure you maximize deductions you need to work with the most experienced quantity surveyor in the country bmt tax depreciation is the leading specialist in the industry they've completed over 700,000

tax deduction schedules for residential investment and commercial properties australia-wide bmt guarantee to find double your fee in the first full financial year deductions call bmt on 1-300-728-7255 726 today for an obligation free quote when you're buying a property a pre-purchase building and pest inspections the norm well it should be for diligent buyers but what's usually not considered is whether the property is contaminated by illicit substances david pie from australian meth alerts quoting from a release on the subject by brisbane conveyancing and real estate law firm Bennett Carroll, the solicitors, says 35% of Queensland properties that have been tested have returned a positive result for illicit drug contamination.

Queensland, by the way, is thought to be the most contaminated state in the nation. But the numbers that are being reported are the properties that have been tested. So the question remains, how many are contaminated and have not been tested? David joins me to discuss this. David, have you got a handle on just how bad the national result might be? Australia is the worst-using meth country in the English-speaking world. Wow. Do you know how many people are using meth?

Are there any figures on this? They estimate, the Australian Drug Foundation estimate, that one in 75 people over 14 years of age have used or are using meth regularly. I guess this is one of the insidious things about meth is that you don't really know until you get some symptoms. So we'll talk about what lawmakers can do to help us here. But firstly, can you give us an indication, anyone watching this now who could be fearful of it,

what are some of the indications that you may have meth contamination in the property? Respiratory problems, anger, lack of sleep pattern, regular sleep patterns um coughing uh anxiety because you can't smell it can you there's no is there no smell of discoloration no with meth residue contamination there's you can't smell it and you can't see it and that's what makes it a huge huge problem it's is contamination or the effects of it worse with kids than it is with adults would you say well it's it's unproven but most people that the people that we speak to indicate that the kids because of their low

immune systems and all that sort of stuff they're walking around contaminated properties and touching it and then wiping their face and all that sort of stuff and it's um it's been written in the coria mail previously that uh about deaths of infants from meth contamination now i understand you did a test just recently with Channel 7 and I mentioned at the intro and you mentioned also that Queensland is probably one of the worst, well I certainly mentioned it, one of the worst states in Australia for meth contamination. Have you got any stats from that exercise you did with Channel 7? The exercise we did with Channel 7, we tested

20 properties across Ipswich, Brisbane, Gold Coast and 60% of the properties that we tested came back to evidence of meth residue existence yeah it's it's quite staggering and i you know i wonder obviously people come and go out of rental properties and they could there could be meth contamination in there does it disappear over time no certainly not what meth all the precursors associated with methamphetamine attach themselves to different areas and properties with curtains carpets air conditioning units door handles or whatever and when those precursors that disturb simply by opening the door or a window or turning air

conditioning on it spreads further into the property okay i'm going to ask you in a moment about responsibility but before i do that can you just give me an indication about how we go about finding if a property is contaminated um you know what and what are the costs involved well simply you've got to test properties that's that's the moral thing that they've got to do yeah but tell me about tests how expensive are they and how how easily can i get a hold of one we've got a patented product that all property managers landlords tenants whatever can use for a cost of $90 or less. How reliable is your test at $90?

It's patented, tested. It's been tested by all the necessary authorities. All right, so it's pretty reliable. So if I did that and I found I had contamination, what's the cost, the remedial cost? Depending on the size of it. But, Ray, I replied recently in a document that went to all their franchisees that they've encountered properties

that have cost $200,000 to remediate. Now, if you're a landlord, you can't afford $200,000. Who's liable? Is it the landlord? Currently, yes, because it's been unproven in court. But if I was a landlord and my property tested positive, I'd be going straight to the property manager and saying, you know, why is this so? And in defence of the property managers,

they can't report on something they can't see and they can't smell. Okay, let me just jump in here in defense of property managers. Is it really their responsibility anyway? Let's look at the scenario, and I mentioned in the opening about when you buy a property, you've got to get a building and pest inspection done. Now, if the buyer doesn't get one done and then later finds that there's a problem, well, the real estate agent is not liable

for that because the onus is on the buyer to have that test done. So shouldn't the onus of that be on the incoming tenant or the purchaser? Yeah, yeah, yeah. All landlords should be asking for their property to be meth tested. But the question is, who should pay for that? I believe the landlords. Yeah, well, I guess therein lies the problem, doesn't it?

There's got to be a reluctance from property managers to tell an owner that it's going to cost them 90 bucks every time they get a new tenant to get it tested. So it really comes down to the lawmakers to make this mandatory, I would have thought. Yeah, absolutely. It's just been neglected. that has been pushed to one side, it's wrong.

It would seem to me to be good practice to do it not only when you change tenants, but also during the routine inspections. Exactly. If inspections are happening every three to six months, as they should do, then that would be the time to logically test. Absolutely, because you've got to keep on top of the problem. At the end of the day, if it's only costing you $90, you know then then you you can sit comfortably okay three months into the tenancy now it's still

clean it's still the same as it was when they took over the property but what happens during a regular inspection you go in and all of a sudden it tests positive yeah just just on that point uh you know i've seen some documentation and training for property managers to tell them how to detect if there's a meth lab in a property yeah that's only one part of the problem um because what about people who are casually using methamphetamine not necessarily manufacturing it where meth labs are located in properties that's that's where the really top end of the remediation comes because the place is just ruined you know everything's got to be stripped and you know and it's easy to detect where a meth lab's been because the evidence is there and that's the

only way people are identifying meth labs is they walk in all of a sudden or a neighbor tips them in or whatever and all of a sudden they find a meth lab but if it's only meth use you've got to test the property for the for the residue contamination this is not the end of the story because i think we're going to have to continue to follow this through you've highlighted this for us and now we're more aware of it. What can be done about this? Because there are some really big questions here about who pays and how often it should be tested. I believe that the solution to the problem is property managers should be writing to landlords and suggesting to them that the problem with meth residue contamination in today's society is out of control. And we suggest to you that you

test your property for a definitive yes it's clean or no it's contaminated now that that allows everyone to draw a line in the sand moving forward because the property managers have got issues as well they're walking in and out of properties on a daily basis and they don't know whether what they're walking into so there's a duty of care there too i wonder and i'm going to reach out to the state government in Queensland anyway just to see how aware they are of this and I'm sure they're very aware of it but they would have to be one of the biggest landlords in the state and and if the problem is that big then they would certainly have a lot of properties that would be contaminated so to be interesting to know have you got a handle on that have you got a feeling

for that yeah we have we've tried to speak to the Queensland government on numerous occasions only only through this reign of government but their attitude is all they do is deflect the two meth labs they don't in any way shape or or term take any responsibility or acknowledge methamphetamine residue contamination caused by use only. And they keep quoting in every single correspondence that I've got back. They refer to the Residential Tenancies Rooming and Accommodation Act, which deems that a tenant cannot be located in a property that's not fit to live in. Now, if the property is contaminated with meth, it's not fit to live in,

but they won't test it because they've indicated it's too costly. We doubt very much that the Queensland Government have got a testing program in place for methamphetamine residue contamination existence. Where do anyone interested in following through and maybe doing their own test and getting one of your kits, how do they go about doing that? Just give us the website.

Simply contact info at methylerts.com.au. info at methaloads.com.au david i want to thank you very much for your time mate i'll come back to you for sure uh and we'll follow up on this thanks thanks for your time good on you kevin thank you successful property investment is a game of finance do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know-how has helped over 1900 homeowners and investors secure more than 800 million dollars in property

wealth so get set to live more work less and live your legacy want to know how to invest in your freedom, visit knowhowproperty.com.au. It's fair to say and completely understandable that following the enormous government expenditure and monetary stimulus pumped into the economy during and post COVID, that the Australian Tax Office or the ATO is rightly on a mission to recoup and collect as much tax as possible to reduce our national deficit in moves the government hopes is going to claw back about $9.1 billion over the next five years. As a result, the ATO has recently announced it'll be targeting and cracking down on property investors and landlords and to support this initiatives the banks are now required to hand over your data. So what does this all mean

and what do you need to be doing to ensure that you don't come under scrutiny or worse still end up copping significant penalties for incorrect or incomplete reporting. To share some light on this we're joined by leading accountant and property investment specialist Tony Dutton from Concept Accounting. So welcome to Realty Talk Tony. Thanks Bushy, thanks for having me today. Mate, looking forward to having a chat. It's a subject that's sort of got a little bit of press in recent times, but I'd sort of kick things off, mate. Can you start by outlining exactly what the ATO is now asking the banks to do

and why the ATO is doing this? Yeah, absolutely. The ATO are using their powers and they have broad reaching powers so they can pretty much short of murder do whatever they want. So they're issuing notices to the banks to provide a copy of some information to the ATO, and they'll use that information to determine if people are claiming the right amount of interest, predominantly interest that they're after at this stage,

on property investors' tax returns. I think, based on their published numbers, there's 1.3, 1.5, 1.6 million property investors in Australia. Yeah. And they're just wanting to do a little bit of a check on people to make sure they're claiming the right amounts. Yeah, sounds fair and reasonable. So how will the bank data actually be used by the ATO then?

So what the ATO do, and by the way, it's not just the banks. This has slipped under the radar, but for the last two or three years, the ATO have been collecting from property managers how much is being paid in rent. And they were very clever. They didn't write to real estate companies and get the property managers to do it. They put the demand on the software companies

that create the software that property managers use. So behind the scenes for two or three years, they have been collecting who's been paying rent and how much they've been paying. What the ATO do is they're building a bit of a data bank of information and then they're running random checks. Now, I haven't seen a lot of these random checks, but in the background, we can assume going on

that there's information provided by the bank, information provided by tax return, if it doesn't marry up. someone's going to get a please explain letter yeah it makes perfect sense so the the old uh keeping the receipts in a shoebox and chucking it at someone at the end of the year probably isn't going to apply too well in the current environment it's probably not a good way to do things if you're an investor you've invested a lot of money in property treat it seriously treat it like a business and um yeah no one wants to see a shoebox full of paper so sort of dig into this a bit then sony what are the most common tax return errors that you see in relation to

rental tax deductions? Yeah, it's been on the ATO's target for a couple of years. The biggest ones we see are interest. It's your biggest single claim. It is a significant amount of money. Some of the errors people are getting there is at the very worst end, you're claiming the repayment, which might be a portion of principal and a portion of interest. So only the interest is tax deductible in that case. The other things that some people are doing is drawing down on their mortgage for holiday and still claiming all the interest. In that case, it would have to be apportioned.

You know, part would be tax deductible and part would be for personal use. The other one that I've seen a little bit is people are remortgaging their investment property to pay out their home mortgage. That's a no-no. That's really naughty. Yeah, no, that's definitely not going to fly.

What about the... Because it's always been a bit of a grey area around claiming costs as a repair rather than as a capital works deduction. Do you see much of that? We don't see a lot of it because we deal with it as it comes in. But according to the ATO, it's one of the bigger problem areas. People are re-roofing their house, for example, and claiming a $20,000 cost as repairs.

I think you can safely assume if you spend $20,000 on repairs, the ATO is going to ask you for a receipt. Yeah, absolutely. So drilling back to the banks then, And what bank information will the ATO be collecting? They'll be looking for names, account numbers, interest, loan balances, dates of birth, tax file numbers, and all of those sort of things,

just so they can match it with your personal details that are submitted to the bank when you take out a loan and submitted on your tax return. They're the sort of things they just want to join the dots. Hopefully join the dots. In some cases, not join the dots. It's the gaps we've got to worry about. So, you know, if there are discrepancies that are identified by the ATO, then what are the implications and what's likely to happen for investors from there?

Yeah, so if there's a discrepancy, and I've got to say there's a very small number of mistakes that we've identified between the information matching. There are a few mistakes, but generally the ATO will write to the taxpayer and say, we've got this information from you, we've got this information from the bank. They don't match up. Can you explain the difference? And they give the taxpayer 28 days to explain the difference. If you agree that what you did is right, you don't have to get back to the ATO. If you want to make a voluntary withdrawal of your tax return

and resubmit it, if it's wrong, that's probably the smartest thing to do. Generally, they'll let you go with either reduced or nil penalties in that case. I think the ATO is really keen to educate people. yeah and so in this case they're going to say look if you did it wrong let's fix it get it right and move on and in my experience most people getting a letter from the ato are pretty keen to get it right in the future that's not not the sort of letter that i'll be looking forward to that's

for sure mate so given all that context then what do property investors need to be doing to ensure that they're complying with the ato requirements and avoiding incorrect reporting issues yeah i I think a lot of it is what you talked about with record keeping. If you do your tax return through a professional accountant, put your cards on the table. If you've refinanced your loan and taken money out for a holiday or a car or for your residence, just say so. There's a way of dealing with this before it becomes a problem.

So keep your records, do it right, and disclose. If you're doing it yourself, there's no problems with that. You can do that yourself. but just be careful that what you're declaring is direct costs of renting a house and not costs of maintaining a holiday or a lifestyle i guess um if you're honest there's always a way to fix things if you try to hide it it's it's going to go pear-shaped yeah absolutely you know from what you've said the ato is going to give people a significant opportunity to actually right the wrong if they've made a mistake either deliberately or otherwise uh if it goes beyond that what sort

of penalties might get imposed uh if it got to the worst case oh look most people will resolve it and move on if if you choose to be obstructive and uh and and not helpful there's a range of penalties that can come from quite significant fines to jail time yeah this is this is not the sort of stuff that's likely to ever happen for your standard mum and dad investor that make a small boo-boo yeah at this point the ato wants to educate people yeah and get it right and you know by the way if if you don't engage with them they can amend your tax return without you agreeing so then they're more than likely if they disagree they're going to say well we've changed the tax return we've got rid of all this cost um you want to fight us you fight us yeah it's much

easier than jailing people they say we've changed it that's the result if you don't agree you take us to court yeah okay i like it i like it well that that makes it pretty clear and simple and as you say it's an educational opportunity for people to make sure they've got it right uh mate uh really want to thank you for this very timely update as we come into and approach the tax time tony and thanks again for joining us on the show today thanks bushy pleasure thanks mate well as you've just heard as we continue to move into the era of open banking and increasing outside access to all of our information it's clear that you need to be treating your property investments as a business. So to avoid the risks of incorrect

reporting, speak with a trusted property specialist accountant like Tony and the team at Concept Accounting to ensure that you fully understand your tax obligations, that you keep detailed records and that you're diligent in your property tax reporting. Keep tuning in to Realty Talk, your property hub's trusted voice for all things property. Well, that brings us to the end of this week's show. Another big thanks to our special guests, Pete Wardgent, David Pye, and Tony Dunn. And before we go,

make sure you don't miss another episode of your trusted voice for all things property by subscribing to the Property Hub now on your favorite podcast player or wherever you're listening to the show, where you'll also get to enjoy the Get Invested podcast delivered to you each and every week.

Thanks again to realty.com.au, BMT Tax Depreciation, Appiro Marketing, dm media and southern cross austereo for their ongoing support i'm bushy martin from know how property finance and along with kevin turner and the entire property hub realty team please remember that time is what we want most but what we use worst that's more food for thought and we look forward to seeing you again next week miss something in this week's show or want to catch up on past shows? Do it anytime at realty.com.au where we connect buyers, sellers and agents

differently.