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Renting out a room can incur CGT

Posted on March 2, 2016 by admin

A large number of Australians who rent out a room in their home, whether it be via Airbnb or another avenue, are unaware that the practice can incur capital gains tax (CGT).

Many assume CGT is not on the cards because profit made from the family home (or ‘primary residence’) is usually tax-free. However, those who earn an income from a portion of the family home may inadvertently create a capital gain for the ATO to grab.

Even though CGT is affected by events throughout a vendor’s ownership period, it is often calculated many years down the track, and unfortunately, many may not remember or be able to locate records for a relatively short time in which they were renting part of the house out.

Some people are aware that renting out a portion of their home may trigger a capital gain event, but still fail to calculate the percentage of the property the calculated gain should be attributed to.

Vendors need to work out the portion of the property that was used for ‘investment’ or ‘income producing’ purposes based on the floor area rented out as a percentage of the total property. This needs to then be apportioned to the period that space was made available to rent throughout the duration of ownership.

For example, a couple who bought their property for $1.5 million back in 2006, sell it for $3 million in 2016. During their ownership, they rented out a bedroom and bathroom for four years and worked out that the rented space is equivalent to 15 per cent of the property.

15 per cent of their capital gain ($1.5 million) is subject to CGT, which comes to $225,000. Their next step is to calculate the proportion of time the part of the property was rented out. Since the area of the property was rented out during four of the ten years of ownership, they need to work out four-tenths of $225,000, which is $90,000.

Since they owned the property for more than a year, the CGT discount of 50 per cent applies, making the assessable net gain $45,000.

How much the actual tax works out to be depends on whose name the property is taxed in. For CGT purposes, and if the property is positively geared from an income tax perspective, it is better to put the property in the lower income earner’s name.

If the property was negatively geared, the couple would need to consider the tax benefit they would sacrifice. Negatively geared properties result in a larger tax deduction if claimed in a higher income earner’s name.

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Things to consider before rebranding your business

Posted on February 13, 2020 by admin

Rebranding your business can seem like a daunting task, as it can involve a range of arduous tasks such as changing designs, updating clients, retraining staff and changing your marketing strategies.

However, rebranding can be an option for many businesses if:

To make the task of rebranding seem less daunting, consider these tips before starting to help you in your process.

Evaluate your need for rebranding
Make sure that the reason for your rebranding is valid and don’t act on impulse decisions. Rebranding can take a lot of time and resources and can often decrease your business if not done successfully, so it is important that you evaluate if rebranding is right for your business and outline the reasons why. It can be helpful to talk to staff about it to get ideas from people who are also invested in the success of your business.

Plan a budget
Before you rush into rebranding your business, make sure you have the funds to do so. Research and estimate how many resources will go into different areas of rebranding, e.g. marketing, website design, training staff etc. and outline a budget that can help you manage your finances through the process.

Have a strategy
Before you start rebranding, plan out a strategy that will guide you in the process and can increase the chances of success. This will help the process run more smoothly and prevent unexpected challenges that could detriment your business.

Solidify your mission and values
Having a clear understanding of the mission and values you want your business to have going forward can help you make important branding decisions and help build the foundation for your new brand. Having you and your staff on the same page with the business mission and values can improve efficiency and motivation when working on the rebrand.

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