Your Ultimate Guide To Reducing Tax on Vehicles, Private Insurance & Land

Talking Property Tax with Julia Hartman: Episode 3

IMPORTANT NOTE: This recording was filmed and produced before Queensland’s Land Tax was scrapped.

With a number of policy changes on the cards, in our third episode of “Talking Property Tax with Julia Hartman,” Ben and Julia cover…

• Salary Sacrificing For Cars: How do Salary Sacrificing and Novated Leases work? Plus, how can you tell if either is beneficial for you?
• Electric Vehicles – What are the changes to Federal Government’s policy and when is the best time to buy?
• Private Health Insurance – Is it worth it? 
• QLD Land Tax Changes – How can you get around it?

Together they’ll reveal how these policies work and what actions are worth taking to reduce your tax repayments. Watch now to learn more!

For more, check out these articles from Julia’s Blog:

• Salary Sacrificing a Car Explained
• When to Buy An EV
• Queensland’s Land Tax Grab Explained
• Queensland Land Tax 2022 Assessments

And if you’re interested in our free and no-obligation initial consultation, you can learn more about it here or simply fill in the form below and one of our qualified tax accountants will get in touch with you soon.

Transcript

(Please note that this is an automated transcription and as such there might be typos/inaccuracies in the transcript below.)

Ben Kingsley:

Hi, Ben Kingsley here. And I’ve got another great episode here [of] Talking Property Tax with Julia Hartman”. So thrilled that you can spend some time with us in terms of learning more about all things tax. So I want to introduce you to this episode, and also in terms of what we do here, talking property tax is an educational tax series, which is led by Julia Hartman, who is one of Australia’s leading tech experts when it comes to all things, property investing and all things personal tax matters. Now, Julia is the founder of the Ban Tac Co-op Group of which in Empower Wealth’s Tax and Personal Accounting is a co-op member. Julia is also the chief technical tax advisor here at Empower Wealth. So welcome to episode three, Julia.

Julia Hartman:

Thank you for having me, Ben.

Ben Kingsley:

No worries. Now, before we kick off today’s discussions, I wanted to take this opportunity for those who are new to these episodes and to learn more about some of the past episodes we’ve discussed. So I’ll just do a quick review of some of the episodes that we’ve covered off in episode one. We covered off on the top five tax rules. Every property investor must understand. And so we went through negative gearing, turning your PPR or into a property investment, the six-year rule renting out your principal place of residence or holiday home in an income producing property capacity. And then the big tax change rate change that was happening in 2024. So that’s episode one, if you want to check that out episode two, we broke up into two parts. We did the tax planning, uh, to tips for minimising your tax returns.

Ben Kingsley:

So in episode part, one of two, sorry, episode two, part one, um, we talked, we talked about how much, uh, you make of your super contribution and how can you do that? We, uh, did best practise in terms of personal tax bookkeeping, especially working from home discussions that we had in there. And then the end of year considerations for property investors was part one of episode two, in terms of part two of episode two, we also continued on in terms of tax tips to minimise your tax return, uh, and that was claiming, uh, car tax, travel expenses. And then we also talked about, um, other travel expenses in terms of expect inspecting your investment properties and the rule changes there for those who weren’t aware. And then we work through some of the depreciation claims as well in terms of the why, when and how.

Ben Kingsley:

So, if you want to check out those past two episodes, you can find them on our YouTube channel. Um, and also, um, the audio recording of those have been made available on the property couch, um, uh, podcast as well. Now on this episode, uh, we’re gonna continue our theme in, in terms of talking about cars as we’d promised. So we’re gonna look at salary sacrificing for cars, then we’re gonna have a little bit of an interesting look at electric vehicles, um, under the new federal labour government in terms of what they’re doing there. Um, and so, so that will round out our discussions when it comes to, um, cars and what we can claim and what we can’t claim. And then we’re gonna talk about private health insurance. Is it worth it? And finally, we’re gonna have a look at the, uh, Queensland land tax changes and in terms of what does that mean from, you know, technical point of view in terms of calculating that out and what the impacts may be of those changes. So that’s it where, uh, we’re gonna get into it. So thanks for your patience, Julia, in terms of letting me get through that intro. Um, I want to talk firstly about, um, you know, salary sacrificing for cars. We have a lot of questions through the business about people being told that they should look at something like a Novate lease when it comes to salary sacrificing to save taxes. One of the claims that we hear, but can you just tell us how salary sacrificing works?

Julia Hartman:

Okay, well, you salary sacrifice by saying to your employer, reduce my gross wages by this amount and provide me with a car. Now you mentioned notated leases. So a Novated Leases where really the employer has the car, has the head lease of the car, but then it’s the employer takes over that, those payments. So then for tax purposes, the employer owns the car, but if you change employers, you just move who nos that lease for you, but it’s a lease. So your employer can’t get the immediate write off on that because it’s a lease vehicle. So the employer’s paying for all this costs out of your after tax dollars and they run it professionally, supposedly, um, sorry, they’re paying for all these costs out of your before tax dollars. And they run it professionally by calculating it out at the end of the year. If you don’t use all that petrol or then they adjust it so forth.

Julia Hartman:

But of course the, the tax office still considers this to be part of your salary package. You’ve earned it. So they’re gonna tax it, but they tax it under the FBT regime, fringe benefits tax, and the way they arbitrarily measure the value or the tax you pay is they say, right, we take 20% of the original cost of the car. Um, after four years, that’s reduced by third, but they start with 20% of the original cost of the car is what effectively gets spit FID with numbers. But basically that’s how much you pay in tax. So the car costs, um, $50,000 every year, your employer’s going to have to pay $10,000 in tax, um, in FBT for it. Now this assumes that the employees on the maximum tax rate. So if you’re not make sure you make an employee contribution to bring that down to zero by the employee contribution is your after tax dollars. So you pay for part of the, a pay for getting that car. These employers still got all these advantages that they only have to pay, um, tax on the, that 20%. They get the GST back on the fuel and the purchase of the car or on the lease payments. So they’re, they’re, you’ve gotta do the numbers, but hopefully there’s a, a win there.

Ben Kingsley:

So you’ve gotta, there’s a couple of questions I wanna ask you about sort of understanding the pre-tax versus the post-tax. So the idea here is that the, the, the people who promote these opportunities to do no lease salary sacrificing is trying to allow the consumer, uh, the taxpayer to access, um, assets or, or, um, opportunities with pre-tax dollars. In other words, it’s before the tax is then calculated, which ultimately reduces their taxable income. And that’s the tax benefit that these promoters are talking about, isn’t it?

Julia Hartman:

Yes, but there’s a callback in this FBT, because the employer’s gonna take the FBT off you too. And the tax office did the numbers to try and even announce so you don’t get the benefit really <laugh> so you make sure you do the numbers before you enter this package and see if there’s any benefit. Now, if you are using that car partly for work purposes, um, then you can’t claim the tax deduction in your return for that work use because you don’t hold the car that’s the employer does. So you need to keep a log book on that car and try and persuade your salary package company to reduce the amount of FBT paid on saying, well, you can’t charge the full amount. Um, because half of the time it’s been driven for work. So what really happens is when you’ve got, um, a highly used car, like a salesman or something, the employer covers a whole lot and they hopefully have enough sense to get you to keep a log book so that they don’t have to pay FBT, but otherwise they just pay the FBT run, try and get their employees to get log booked for three months.

Julia Hartman:

So the bottom line here is make sure you do the numbers to make sure the package works for you. And remember, 20% of the purchase price of the car is pretty high. And that to me, leads to electric vehicles.

Ben Kingsley:

Well it does. And I, and I want to come to that, but I think there’s so for me, in terms of what I see in terms of some of these Novated Lease companies and so forth is that they are claiming things like ultimately you get to choose the car that you want. They will negotiate better with their buying power to get you a cheaper car is one of the claims that they make. And it may be true if they, you know, if they ultimately are, but I think what you’re also alluding to for really high income earners, it may not necessarily be, um, as valuable as maybe someone who’s looking for just a, a moderate car and a standard opportunity to run that packaging up through cuz their, their claims are that they’ll obviously again, be able to, um, save on the negotiating on the car.

Ben Kingsley:

They talk about that there’s potential tax savings, um, that they may be able to, and they’ve got examples on their websites and so forth about doing that. They help in terms of reducing the management of your budgeting, they smooth your budgeting out because all of your costs are forecast and the running costs are also calculated in there. But I think, um, the point that you make there is that it it’s gotta be case by case doesn’t it because ultimately, um, there’s gonna be different nuances and different examples where there’s private use versus business use of that car. And so for me, that’s probably where it comes down to talking to your accountant, as opposed to talking to this, this, you know, Nova lease company who are gonna make it sound, um, attractive. And especially if, um, there’s borrowed money attached with that arrangement. What happens if, you know, you have to borrow money as part of, of securing the car?

Julia Hartman:

Well, well that’s the employer has to borrow the money. Yes. Anyway. Yeah. Um, what I’ve found is that, um, the lease companies sometimes won’t even let you know how much they got the car cheap before, and I’ve worked it backwards and found that it wasn’t any bargain anyway. So it’s, but you make a very good point there then that if you buy a cheap car and you’re only paying FBT on 20% of a really low value car or the car’s four years old and you’ve got to that two thirds, but it’s gotta be four years held by it. Yeah. Within the group. Yep. Um, then, then you’re paying FBT on a really low value. Most of be running costs are gonna be the same. The retro’s gonna be similar. The insurances gonna be similar, the fuel’s gonna be the same. So, you know, they might, depending on the car. So the flash of the car, the more expensive the car, less slightly, the package is going to work in your favour too.

Ben Kingsley:

Yeah. And that’s sort of what my research has uncovered in terms of, from the times that I’ve looked at us over time is that yeah, the ATO saw what was happening years ago and tried to tidy up, you know, the big European and the high luxury end cars. And now it’s not as advantageous. And in, in fact, as you’re arguing, it may not be actually financially beneficial at all, um, case by case. Um, but what is interesting is in yeah, in that sort of more mainstream or lower area of salary packaging and so forth, there, there does seem to be some tax, um, savings that do wash out there. Um, if you can run the car economically and you, you can run a, a standard car, but, but again, I would be saying to everyone here is, um, get an independent assessment through an accountant in terms of being able to assess that because we, we are saying here that there are case by case examples in terms of when that is true. And in terms of some, um, jobs that you, you mentioned, fringe benefit tax there before, uh, Julia, there, there are some, you know, some, uh, jobs like nurses and so forth who do get some concessions around some fringe benefits and, and some certainly the ability to salary sacrifice things beyond cars like mortgages and some other costs. So, you know, what, what do you say to those people, um, when they are coming to you and asking you those questions around, um, what is possible? Is it a case by case basis again?

Julia Hartman:

Yeah, well, I tend to, with the people working for hospitals or public benevolent institutions say continue to package in that part of it, the, the exempt part, um, your house mortgage payments and that sort of stuff that we’ve got no possible deduction for and let the car stand on its own because that’s where we are looking to try and get a tax deduction. We’ve got no chance with the house. Um, yeah. And remember it important to remember that you’re not going to get to claim for your car as a tax deduction, if it’s salary sacrifice. So some of these PBIS do the running around to care for people in their car. They won’t get any taxi deduction for all that running around in their car if they sacrifice it. So it’s another for that end of the month.

Ben Kingsley:

Yeah. For that, for that group of people, as you say, who are going out and doing care inspections for people in home and those types of things in D ISS work in terms of moving around to see some of their patients or whatever. So again, another example of where, um, for some people, um, the whole idea of notated leases and salary sacrifice may be a consideration. And remember it’s a three way relationship there with the employee and potentially the company who, who may be managing it together, or if you’re going it with the employee and, um, the employer alone, um, get that advice in terms of making sure that the numbers are going stack up as part of that.

Julia Hartman:

Yeah. And whether you are interested in buying a new car because let’s not make it as an excuse to get, I’m always under clients wanting an excuse to get a new car and what’s wrong with the one you’ve got.

Ben Kingsley:

Yeah. Well, I think, look, they’re always gonna be talking about the benefits of, you know, you’ve got a warranty period. Um, you know, you’ve got less maintenance issues and those types of things, but there are also some notated lease companies who, um, certain secondhand cars, maybe part of that consideration as well. So this is why we’re sort of saying it’s not a, a definite no. Um, there are some, you know, there’s potentially some considerations where it may work for people, but it’s not as a sweethearted deal as what’s basically being put on the table, uh, for everyone to think about when you are, when you are being pitched this opportunity. Um, and it’s like anything that I, that I see from time to time in my time, Julia, around anything that’s being promoted to save tax. And that’s one of its biggest selling points. Um, usually, um, isn’t worth the salt or isn’t worth the effort. It’s gotta have another primary benefit. Um, not just something around tax, because we also know that, you know, with different changes of, of government, we can see different tax legislation change from time to time.

Julia Hartman:

Yeah. Yeah. There should the E everything should stack up on its own before you then go, well, how do we get the best tax outcome from this?

Ben Kingsley:

Yeah. And we did see, uh, labour, the, the labour party come to the election recently, and this is a good segue into the electric vehicles conversation, um, that we wanted to talk about here as part two of today’s episode. And that is, um, they were talking about bringing in a policy. Um, can you talk to that, uh, policy promise, um, that the federal labour government now, now obviously in power that they were talking about in regards to electric vehicles?

Julia Hartman:

Yeah. It’s a bit hard to be absolutely sure. Because, um, by the time people are listening to this odds are through parliament because it’s at the moment it’s there, it’s in the, the lower house. Um, so there will be changes, but there’s, so if I just explain the basic concept that we know will be for certain, and that is that there’ll be no FBT, this whole amount that we’ve been talking about this 20%, if the car is, um, a electric car or, you know, fuel efficient car, and it’s under the luxury car tax limit, then there’s no F B T your employer has to pay. So obviously buying the car, yourself’s not gonna help. This is another reason to salary sacrifice. It’s gotta go through your employer to get this concession, no FBT. So basically the money for running that car, et cetera, is F P T is tax free to you so that it’s like tax free dollars. Um, and think about the amount that you save. We said 20% of every year, your employer has to pay in FBT. So after three years, which, um, the thing is only gonna last for three years at what they’re stating on their website and saying that it’ll only last for three years, and then they may revert back to charging FBT, but 60% of the purchase price, you’re going to say, that’s gotta be huge. Hasn’t it? Especially on electric cars.

Ben Kingsley:

That that’s absolutely material. Now, there is also, um, another element here that we need to consider, and that is around the immediate, um, asset writeoff story in here. Can you, this is where it does make it a little bit more complex. This is the great thing about tax policy, right? There’s, it’s not, it’s never easy. There’s always, there’s always nuances and different layers in terms of what we do. And I mean, we’ll get into the health, uh, the health, uh, insurance one in a minute, but this is a perfect example of there’s carried over policy, um, that we had from the previous government about instant asset write off. So can you explain that to, uh, to the viewers in terms of what that might mean as part of the, considering buying an electric vehicle as well

Julia Hartman:

Right now, if you’re gonna do it for a no lease so that you technically hold the current, you can move from employers, interest, asset, write off doesn’t apply at all because, um, there’s no asset being bought to lease arrangement, but if you are looking at this from an employer’s point of view where you’re going to buy the electric car and start giving it out in the fleet, then interest asset right off start stops. So the 30th of June, 2023, and that’s gotta be in store ready for use. And we all know how long you gotta wait for a car these days. <laugh>. Yeah. So what really worries me now that the legislation before parliament said cars purchased after the 1st of July, 2022, and that did, they did say that on the website originally before the election. So that’s pretty consistent. What I’m concerned for is if, um, is the influence that as it goes through parliament saying, well, this is a bit silly, cause FBT is start on the 1st of April.

Julia Hartman:

So they’re gonna say, well, this is a bit silly. We’ve got this fine line somewhere along the line during the financial year or during the FBT year, where that car, that day and that car that day is treated differently. Let’s get everyone ready to go. And we’ll start for the 1st of April, 2023. So this is my big worry that people rush out and buy it. And then, um, got it too early. And, but the legislation does say 1st of July, 2022 now, and it also says that if you ordered the car before 30th of June, 2022, but didn’t get it delivered until after that, then you still get, get the concession. So I’m hoping that you are, you can, my bet is you can probably order the car now, but I’m a bit worried. Um, so you got from 1st of April to 30th of June to have it instal ready for use to be absolutely sure. You’re going to get all these lovely concessions and get the immediate write off. So good luck with that one.

Ben Kingsley:

And, and there’s a cap on the number of, um, cars that they’re, that they’re looking at, um, is that still in play in terms of the, the amount of, uh, opportunities that there are with had with these FBT waiver?

Julia Hartman:

No, I I’ve seen no limitation in the stuff I’ve reviewed.

Ben Kingsley:

Okay. Sorry. That’s my bad in terms of thinking whether there was any limits, but, um, so that’s good news. Um, there’s a cap

Julia Hartman:

On the price, the cap on the price should pay for it.

Ben Kingsley:

Righto. So, so effectively there’s sort of saying unlimited number of electronic vehicles can be purchased, um, under this arrangement. If, if you’re looking at that as another incentive in which obviously we want to change from, um, you know, uh, combustion engine oil driven cars into obviously a new cleaner world, um, with electric vehicles as well. So, um, let’s see how the legislation finally lands. Um, and as you were saying, you’re thinking that at this stage, there, there could be a wait and see opportunity here. But if you, if you are reasonably confident, um, that the legislation will go through unchanged, then, um, basically having, uh, a, a pre-order cuz my understanding is also, there’s a long waiting period for electric cars or any type of car at the moment. Um, but it just, it just does make that little bit uncertain. So in, in terms of what you wanna be doing around, um, when you order your car versus when you receive the car, so is there any view to, to wait till the 1st of April or have I got you right in saying that, um, at this stage you’re reasonably confident for them to be, if they’re interested in this opportunity to learn more about it and then, uh, put their purchase order in,

Julia Hartman:

Well, it’s a crystal ball thing, but we’ve gotta rely reasonably strongly on the legislation. If you are going to no vape, Lisa, um, then you’ve got no reason to rush about the June 23. Yep. So I just wait and see him until it gets all the way through and then go on order. But if you are worried that you won’t be able to have, cuz you wanna write off and you won’t have a full first instal ready for use, I’d be inclined to order it. Now, if it was me, I’d be ordering it now to make sure I’ve got it by that time. But making sure it’s very clear, you don’t want it delivered until after the 1st of April, just in case you got yourself, I’ve got, you’ve got every possibility covered there, but if you’ve got an opportunity that someone’s selling you a, a very good car right there now, well they’re gonna get screamed at if they turn around and change that date, that was on the original bill. So I think you’re reasonably safe to buy it. Now I’m just adding a little bit of conservative saying after the 1st of April 20, 23, and I could be quite wrong, I’d be wrong before Ben, but not when we were arguing earlier, I was

Ben Kingsley:

Arguing, always debating about love. I love this. I love anything to do with tax and implications for, for all parties. So that’s all good. Hey, um, so in terms of, so, so I’m really clear on that, cause I’m still probably got a little bit of grey area for me, for someone who’s new to this legislation. Um, what we are talking about there is two parts. There was one about Nova lease, but we also saying that there’s an opportunity for a direct purchase of an electric vehicle, which the federal government is gonna help subsidise.

Julia Hartman:

Well, the direct purchase, you remember this immediate write off that you were very keen about. You can’t do that under lease. You’ve gotta buy the car. Even if you borrow money to buy it, you’ve gotta buy the car to get the immediate write off.

Ben Kingsley:

But the immediate write off is effective for businesses. Not so much individuals.

Julia Hartman:

Yeah, no. And if you are, you wanna technically own the car, the only way you can salary sacrifice it and sort of have some holding ownership of the car is to no vape lease. So they should catch 22

Ben Kingsley:

There. So, so if you are going out thinking that you can buy an electric vehicle and the federal government’s gonna give you a subsidy or a kickback, that’s not true. Um, but it would have to be through these arrangements in which you’re self-employed and potentially looking at the asset writeoff or if you are through a Nova lease opportunity is what the, the federal government’s looking at there in terms of that policy. So, and I think that’s, that’s helped me because I, what I didn’t want consumers to be thinking about or viewers to be thinking about is all. So the state, uh, the federal government has some type of kickback in regards to electric vehicles, but what we can talk about and it’s define a word on electric vehicle concessions is a lot of states and territories do have, um, certain incentives, um, for businesses and for potential, in some cases, individuals where they are looking to attract people or, or steer people, influence people into buying electric vehicles going forward.

Ben Kingsley:

So, um, what we will do is in the show notes, we’ll make sure that we put some of the links to that information, um, as part of that. So we’ve got all of the different, uh, legislation from all the different state and, um, and territory arrangements. So you can see what’s applicable, um, when, when it comes to buying electric vehicles, I mean, it’s good for the planet. Um, over the long term, it’s probably gonna be very good from running cost point of view, they where they will be, uh, cheaper to run over the longer term. Um, so, uh, that’s something to consider in terms of electric vehicles. So, uh, thank you for, for that update in regards to, um, cars and what we’re seeing in terms of Nobel leases and electric vehicles. Let’s pivot now and, and talk about, um, private health insurance. Um, this one is always, you know, fun for me in terms of just trying to keep up with the legislation. There is so many moving parts when it comes to, um, health insurance, per se, and private health insurance and Medicare levies and so forth. So I think we need to start from the very beginning, um, to let’s understand a bit about what the Medicare levy is, um, and why it was originally introduced Julia

Julia Hartman:

Oh, well, way back in the Medicare levy, um, day. That was Hawk. I remember that was only just starting work and, um, yeah, that was so that we all didn’t have to pay for going to hospital and that sort of stuff. It provided us with the health system. And I think it was about 1% back then, and then Julia Gillard increased it a bit to, um, cover N D I S and it’s, and, and there were other increased online it’s now at 2% and they still need to put more pressure on. So they, um, I think that, and they needed to incentivize people if they could afford it to have private health insurance, to take pressure off the, the public hospital system. So they brought in the surcharge.

Ben Kingsley:

So, so it’s for basic hospital. Well, we need to understand that. And what we are also being seeing is, um, if less people are in the pub, the private system, there’s more cost on the public system and more pressure on the public system. So what the governments then looked to do, it was to potentially give you a, uh, rebate or a, an a, an adjustment, if you took out private health cover, is that the best way to, to describe what’s happening in regards to private health insurance and, and its relationship with this levy?

Julia Hartman:

Well, you could call it a rebate if you’re a politician, but really they’ve introduced another tax. And they said, we’ll give you this back, but we charge you that. So, you know,

Ben Kingsley:

And I think that’s important. So let’s, let’s, let’s unpack that because that is the, the big piece here. Like ultimately they’re still catching all of us, but yeah, there was a, there was a trend there where people were getting out of private health cover. And so what did they try to do to, to get the balance, right? In terms of introducing these types of surcharges and et cetera?

Julia Hartman:

Well, also, you’ve gotta remember from a high income earns point of view that they might, um, not want private health cover because they don’t need to ensure against the possibility if they have to go to hospital, they’ve got the money for it. So, um, yeah, they had to incentivize for the high income earn to, they wanted more, they wanted more Medicare. They, how we gonna do it, we can’t beat up on, um, the lower income earn anymore. So we’ll introduce this surcharge. So it’s two parts. There’s two ways they get it, high income earn, and they start picking on them. When a single person goes over 90,000 in adjusted income and a cut family, combined income goes over 180. So once you go over that, you will cop an extra surcharge over above the 2% Medicare Lev that applies to everyone, except the very low income people.

Julia Hartman:

You’ll cop an extra surcharge, unless you have private health insurance, but you don’t need all these fancy expensive policies though. Still pretty expensive. You need basic hospital cut, public hospital, sorry, you need basic hospital cover. Mm-hmm <affirmative> with an excess. If you’re a single of no more than $500. And if you’re a family, no more than a thousand dollars, that’s all you need to get out of the surcharge. You need to have it the whole year. The real trap is you need to have all your dependent cut. So if you are a person that has a child, that’s not living with you living, but you they’re still dependent on you. You’ve gotta have them covered. Anyway. Conversely, if you have a, you are living with someone whose child comes into your home now, and again, and you feed them. They’re considered dependent on you for this purpose too.

Julia Hartman:

So they’ve gotta be covered. So it’s really ma if you don’t have everyone that’s relevant covered, it’s forget it. You might as well not have the, the coverage. So that’s the first part. They say, we’re going to charge you an extra surcharge on if you don’t have private health insurance and that’s surcharge, um, goes up depending on how high your income is, then they also introduced a discount to get more people, to have private health insurance. And they said, right, we’ll give you a rebate of 30% on the premiums you pay to the private health funds. But, but then they took it away by saying, once your income gets up, this high, your discount reduces, reduces, reduces, reduces. So when we present people that have got a really high income with their tax assessment, they’re seeing 2% of their income go in the normal Medicare level. They’re sort of got used to that. And then they see, um, if they didn’t have someone covered, they caught the surcharge. And then they told the health fund for the coverage that they did have. Oh yes. Give us the discount. And the tax office says you weren’t entitled to that discount your incomes too high. Give us that back too. And I like my job cause it’s about getting big refunds and I feel like set costs. <laugh> it’s, doesn’t go with the programme.

Ben Kingsley:

No, this definitely doesn’t go with the programme, but it, it, I mean, you can understand from a government’s point of view, that the way in which our, uh, health system is set up here is that they need a balance of public private. It’s not fully funded pro uh, public. So, um, and they’re, they’re saying to people who are earning what they consider higher incomes, um, that they should pay a little bit more, um, or get into private health cover, because that’s exactly where we want you to be like, ultimately the public system is, is, is built around a safety net and, and a standard system. But again, because costs are going up so high when it comes to medical, um, they’re, they’re introducing these sort of different types of rebates, but as your income gets higher and higher, um, it’s really clear that, uh, that it’s, uh, it’s gonna be, you’re gonna be caught in terms of having to pay, um, extra for the medical services that this, this nation has. And we do have some of the best medical services. So it’s one of those catch 20 twos. I’d much prefer to be unwell in this country than a lot of other countries around the world when it comes to that, but make no mistake, um, the higher, the income you earn, um, even if you do have private health cover, um, you are going to be paying more and more when it comes to supporting the health system in this country. Is that a fair statement, Julia?

Julia Hartman:

Yeah. And don’t forget your gaps. It’s almost like you go into the public hospital. Um, and you go, they say you’ve got private health insurance and I hate lying to people. I’m not that. And you’ve really gotta say, oh no, I have it. Otherwise it’s $500 here, 500 here. And you’re getting the same service.

Ben Kingsley:

Well, especially in the public system, as opposed to moving through. Yes, that’s, that’s exactly right. But of course, you know, that’s, that’s how the, the system’s built now. What is interesting that, you know, some of our viewers and listeners might be thinking about is when we talk about how do we address income? There is, it’s, it’s different to say, you know, know property investing where with negative gearing that will reduce the amount of gross income. And hence that the tax will be adjusted in this particular case, there is some fine prints. Aren’t there, Julia, where, um, they treat income differently, um, for the assessment of, of these, uh, health charges. Let’s just call them that <laugh>

Julia Hartman:

Yes. It’s, that’s why I used the word adjustable income. And I was talking about the 90, yeah. Earlier. So there’s some things that add back. Um, I’m just trying to, I’ve got, ’em written down here, but yes. So the starters, the, uh, rental property losses are added back. Um, so if you’ve made a, you say your income’s 90,000, you know, or 89,000 got under the threshold I’m right. And then they, but you had a thousand dollars rental loss in there. They add that back. You’ve gone up to 90,000. You were reportable fringe benefits already, also added in. So we were talking earlier about cars, whatever they work out, the taxable value of that, that car goes on your P Y G summary. It does, you don’t get taxed on it, but it gets in your tax return. They add that back to decide whether you’re going over the 90,000. What else have I got? Oh. And if you make any salary sacrifice, super contributions or contributions yourself that you claim a tax deduction for in the, um, in your own tax return, there’s other spits, but they wouldn’t affect the average person. That’s so there’s a lot of ad backs. Don’t don’t

Ben Kingsley:

Mind. Yeah. So, so in other words, you really, you know, you’re probably thinking about your, your broader income is probably what’s gonna be assessed here when it comes to the, the Medicare Lev and the, and the surcharges and how they address for rebates and so forth. So, um, there is a lot of complexity in that. Um, again, um, it’s not about beating the system, but it’s, it’s probably good to get some advice around this in terms of speaking to your accountant, in terms of understanding how close you are, um, and what those impacts can be. Because, um, I, is there any way in which, um, there might be, um, a, a, a way to get under those thresholds, that is a legitimate, legal way, Julia?

Julia Hartman:

No. Well, that’s what those aback are about, about the only thing is your work. Assuming we’re talking employees here, you work related deductions there, so it might be time to go out and buy new uniforms if you’re that close or a bit of stationary, or, you know, um, I don’t think donations are added back. Certainly not in that list. I had there in front of me. No. So, yeah. And I would’ve put it if it was, um,

Ben Kingsley:

If it was there. So, so that could be, you know, obviously another consideration in terms of how that, uh, how that works and in terms of the, there’s obviously different scales of the, the rebates. Um, we won’t go through all of those scale skills. We’ll be sitting here reading off numbers, but is there anything further that you wanted to add around the, the private health insurance rebate? Um, we’ve done a broader view on it, but is there anything further you’d like to add?

Julia Hartman:

Well, it’s, it’s a rebate is one word that I think most people understand it as a discount. They get on their premiums when they’re talking to the health fund, it’s the discount. Yes. And they, the health fund, if you tell them the exact amount of income you expect to have, they will work out whether you get 30% or 26%, all those numbers you were talking about that she, and try and hit as close as possible, um, so that you don’t have to pay, but it’s not the end of the world. I mean, you could just say, look, take it. Don’t gimme the discount now. Cause I’ll get it when I do my tax return. Cause if the, if you hadn’t got any discount, you do qualify, then they’ll just give it to you as an extra refund in your tax return.

Ben Kingsley:

And I think that that’s the, that’s the easier admin course in terms of, um, again, not, not trying to get that up front, um, on balance. Julie, do you have an opinion about, um, the benefits of private versus public? Um, because again, we’re seeing a lot of different moving parts and it’s probably case by case for each household, but do you have a general view about, um, the idea of taking private health insurance or if there’s any, you know, advantages that you can see when your customers are asking, you know, should I be doing this? Should I not be doing this?

Julia Hartman:

Well, the surcharge is definitely designed to be high enough that it’s worth having the private health insurance. So it’s a no brainer. Get out there and get it, get it as soon as possible at the start of the year, you’re gonna have a higher income. Like I said before, I hate lying to people, but if I’m rushed into a public hospital, I I’ve got it. There’s no advantage. But the other, as we, most people know, I broke my ankle and as they were racing me down, I was in agony and they were racing me down. I’m sucking on the green steep <laugh> and I thought the private hospital’s closer. I said, I’ve got private health insurance. I, they were happy to I to the private hospital.

Ben Kingsley:

Yeah. I’ve and I’ve recently had an eye operation, the same sort of thing. This is when it does, when, you know, when you are private, if some cases it’s not elective Sur, uh, sorry, if’s not emergency surgery and it’s an elective surgery, that’s ultimately where you’re potentially gonna get your health, uh, issues addressed. So if they’ve designed the system where there’s an advantage of having private, um, you’ve heard from the expert in terms of, you know, go out there and get it. And as you were saying, um, is there a, an opportune or best time to start it? Um, I did hear you mention a date earlier, but is there anything else you’d like to add to about when you should potentially start private?

Julia Hartman:

Well, if, if you don’t have it at the start of the financial year, on the 1st of July, then you are going to pay some surcharge cause it’s pro rat. So if you got halfway through the year, you’ll only pay half the surcharge you would’ve paid.

Ben Kingsley:

So pro rat. So get it as soon as you possibly can for you and the family. And, and obviously, you know, remembering that your health is your wealth. So it’s always important that, um, that you put those health matters always first. So, um, that wraps up our conversation around the Medicare living and private health insurance as is it worth it, let’s now turn our attentions to one of the, the biggest stories for this year in regards to tax. Um, and it’s a state based tax we’re talking about here. Uh, we wanted to talk about the changes to the, the Queensland governments land tax and how they go about, um, taxing, um, people who own investment properties inside Queensland and who own investment properties inside and outside of Queensland, because there is a change to, um, the way in which they, they calculate that. Julia, can you take us through those changes please?

Julia Hartman:

Righto. Let’s, let’s start for the first introduction of it. So if you, um, in Queensland, if you have more than $600,000 worth of land value, so that’s the value in your rates notes. It’s the UN improved value. If you have more than 600,000, you start to get per individual, you start to get caught in the land tax area. Now your own home is exempt from that. So it’s only properties that you own. Other than that, it’s not just investment properties, it’s holiday homes too. Now, if they’re owned in other entities, there’s a different threshold. It’s 350,000 for company’s trust and super funds. Um, but let’s just concentrate from the individual point of view. We used to think it was very clever to buy properties. Once you got close to lend tax threshold, you move on to another state cause it’s a state tax. So every state, um, had their own threshold and you’d stay under threshold.

Julia Hartman:

Well, Queensland’s done it first. Um, and, and I’m betting, the other states might follow Sue. They get away with it. But, um, they’re saying that they’re going to, when they look at that 600,000 take into account, the value of all the properties you own Australia wide, other than your main home. So you can imagine for the people in new south Wales, cause up in Queensland, it’s, it’s pretty hard to have one property with more than 600,000 land value, but down in new south Wales and Victoria, for that matter, it’s not going to be hard. So suddenly people that had just one property in new south Wales and one property in Queensland are going to be caught with land tax. The 600,000 thresholds gonna be used up on the new south Wales property. And then they’re in there for the whole of their Queensland property and it’s going to cop tax and they called the 30th of June, 2023.

Julia Hartman:

This year, end up getting a little letter from the land tax office saying, we want about four grand off you or something like that. Because also if that property land value is worth 800,000 in new south Wales, while they’re not going to tax that as such, they’re going to say, well, hang on that extra 200,000, actually I it’s the next thresholds, uh, million hold higher. But anyway, they’re gonna say, let’s look at not only are you now in the land tax pool, but you’ve gone up into a higher tax land tax rate because you’ve got that property down there. So it it’s going to be huge. And, um, we do have a fact sheet on this with the numbers.

Ben Kingsley:

Yeah, look, it is it’s, it’s obviously something that I’ve been quite vocal on in regards to those changes because the, the challenge is it’s not grandfathered and the people who say might have, uh, in investment property in, in Tasmania, um, where land values might have been cheaper than people who have a property in new south Wales where the land value was higher. There’s there is a clear discrimination against them in terms of, um, the way in which Queensland is going to treat, um, how they tax that Queensland property. So we’ve, we’ve obviously in our business been studying all the different nuances that we have for the different types of clients we have. And so we have might an example might be we have, uh, one client with one property in, in new south Wales with a high land value and then the one investment property in Queensland.

Ben Kingsley:

And, and that person might consider selling that property, um, in Queensland and then start to diversify their portfolio. So, um, you know, I’m, I’m not so sure that everyone invested everywhere else because to avoid land tax. I think diversification, um, as part of their investment strategy is also, um, a very sensible, um, component to why you would invest. So I think that’s where it does come down to case by case because what’s not changing for those people who live in Queensland and have all their investment properties in Queensland. The, the, it is the status quo. There is no changes to them, uh, depending on the, the, the ownership structure that, that there’s business as usual, um, where it does get interesting, Julia and, and I’m interested in, um, you know, what your thoughts are here, but if you had say two properties in Victoria and you were looking for that diversification model, would you consider Queensland as a, as a future investment opportunity?

Julia Hartman:

Well, you’ll have to factor that land tax in, but probably those people with multiple properties in Queensland are buying that lane tax already, too. So it’s just, it’s just a matter of the numbers games, but you are talking about now, the looking at the future, what am I gonna buy in the future? It’s only the people that have already got properties that are gonna get caught out buying in the future. There are a few strategies you can do because from lane values are rather low in Queensland anyway. So not long ago, well, it might have been six months ago now, cuz we’ve been aware of this for a while. It’s just people, the public won’t see until June 23. Yep. Um, clients of yours consulted me on, they wanted to buy several properties and one of them was in Queensland and we wanted to self-manage super fund anyway, for other reasons.

Julia Hartman:

And um, we bought, we decided that the property we bought in Queensland was the one that was going to be in the self-managed super fund simply because that got 350,000 threshold. That’s a pretty hard threshold to go over with one property in Queensland. So they were nice and safely. So that, that with, with proper advice, um, and people will have an, an understanding going forward now, um, it’s going to be minimised the impact for people buying properties. Um, but I have got some numbers in the fact sheet that you’ll get. And um, certainly sometimes it’s not worth the cost super funds are expensive to run. So you wouldn’t necessarily do super funds, but you might decide to put in a trust. One of the figures, I, the examples I do, um, it wasn’t worth it. It was only gonna save, uh, because the property was more than 350,000. So the minute you’d go over the 350,000 a w of pay tax hit sick. So its property was under 350,000 was worth buying it in a trust. This is the unapproved land value, but if it was over 350,000, cause that immediate amount of lane tax wax in they’re only saving $250, which, um, didn’t cover the cost of running the trust.

Ben Kingsley:

So the, yeah, the administrative and holding costs and the ongoing costs of that. And that’s, I mean, what we do know is, um, Queensland’s decision is definitely different than the way in which other states and territories have, um, are gone about, um, ensuring that, uh, the land value of the properties that are held in their states are taxed appropriately. So we’ve seen Victoria I think lead the charge, um, where they started to aggregate, um, properties that were held in trust where the trust ownership and the beneficiaries were aligned. Um, and that sort of made sense. Um, and, um, you know, so that they had a, they had a, obviously back in the time, there was a lot of hoo-ha about that in, in terms of getting that change through. Cause it meant that those people who did have those structures, um, had another lump, some expense that they weren’t anticipating, um, uh, and, uh, new south Wales, um, and south Australia have also, um, got complex structures.

Ben Kingsley:

And when you start getting into different types of entities and how they work, it’s just a bit of a minefield when you’re looking at the land tax regimes of each state and territory. Um, so that’s, that’s absolutely true. And I think one of the things that, that when you’re thinking about an investment in property, um, you should be thinking 20, 30 years and beyond. Um, that’s the way in which, you know, we look at property for the long term, a couple of sensible investment properties over the long term is, is what we’ve always advocated for and not building out huge portfolios for the sake of huge portfolios. Um, but one of the things that I suspect we will see is that they will continue to keep tinkering with legislation. So right now, um, if you did buy in a trust in Queensland, um, I suspect that they will look at, um, what’s happened in other states and territories as well.

Ben Kingsley:

And I suspect that they will attempt whether it be now or in the next decade or two to aggregate those structures. So, you know, it’s about understanding those rules and as you’re about to point out Julia, um, there is, there are ways in which you might be able to navigate around them, but if you don’t know what the legislation is today, um, and you make your decisions today and then they retrospectively change that legislation, that’s where it har that’s where it’s hard. But you do say let’s talk about, um, how you may get around those, um, those legislations in terms of, um, the trustee and also the beneficial owner. If we can talk to that,

Julia Hartman:

We have already have aggregation rules in Queensland, so let’s hope they don’t change it, but unfortunately, yeah, that does affect retrospectively. So the aggregation rules for trust is if you’ve got the same trustee with the same beneficiaries, then you, they they’re considered one. But if you’ve got a trust E here, um, say you and I shed a company and we had separate trusts that for our families, then that trust, um, trustee would be assessed with two separate land tax notices, cuz it’s got two separate trusts underneath it. Yes. But if they both, those trusts were my trust with my family members as beneficiaries, then that there would be one lane tax assessment, which means one threshold. So it’s a ma matter of if, what I’d have to do then if it was both family members, I’d have to have a different company for each trust. If I had a different trustee, then um, they get separate assessment notices. So that’s all I have to do, but I have the cost of running an extra company.

Ben Kingsley:

Yeah. So it’s one is setting up the company, then it’s the annual, uh, compliance costs of maintaining that company thoracic. And then there’s also the tax, um, and financials and tax returns that need to be done for that company. So it starts to add up in terms of how that plays out.

Julia Hartman:

Well, you don’t need to do a, a tax return for a trustee company if that’s all

Ben Kingsley:

It does. Yeah. Good point. So, so yeah, it’s quite interesting. Um, it Al ultimately means that, uh, the government’s, well, the Queensland government is trying to raise, uh, additional taxes, um, through this, uh, change. Um, and with that obviously comes higher costs associated with, uh, running and investing, um, in property in Queensland. So it is, I think to your point, Julia, it’s, it’s one of those really interesting ones where as you now look at your strategy, and if you already have existing properties, then you’ve gotta take into consideration those existing properties about how you execute into the future. Um, if you, if you, now that you know, that, that, you know, this rule is coming in, it may just, you know, it may, if you don’t already own property in Queensland, it may be beneficial for you to keep away from Queensland, um, or to look at a different, uh, structure in terms of what you are doing to invest in Queensland.

Ben Kingsley:

Um, the keeping it simple, you will probably look into state of view, wanna bring some complexity and, and structures in, um, that might get you into that, into that market. But if you all already own property in Queensland and you also have property outside of Queensland, um, the message here is really clear. You’re gonna need to talk to your tax accountant, um, about the potential impact and just how much additional costs, uh, are going to be charged. And, and we can, it’s very clear that, um, it looks quite a sizeable amount in all the models that we’ve done on this. The percentages are usually over 300% increase in terms of the land tax that will be charged in Queensland, uh, based on, and this is a really important point based on owning that property as at 30 June of 2023. So at the time of recording this, um, in, you know, sort of late August, early September period of 2022, we are saying that, um, having those discussions with your property investment advisor or your tax accountant is going to be important for you if you already have exposure in Queensland. Um, and you’re looking to add to your portfolio, um, especially if you also have other properties in other, uh, jurisdictions that, that, that isn’t your principle place of residence. Um, so Julia, any final words in regards to, um, your views on, on this, um, tax grab?

Julia Hartman:

No, we we’ve resolved not to have views on this. <laugh> we’ve closing views, but I do wanna say that it’s funny. Um, you’ve gotta actually, you are compelled to go online and inform the Queensland government of what properties you own in other states. And I wonder why they did that, cuz you think they’d have ways and means of getting the information, but maybe they can’t, but that anyway, there’s a deadline that you’ll get a land tax, um, assessment that’s for sure. And within 30 days of getting that, you have to go online and tell, confess all your properties or by the 31st of October, 2023, you have to have gone online and told them all your properties, Australia wide.

Ben Kingsley:

And so that’s a declaration that they’re asking of you to do. Um, obviously there will be teething issues with a new piece of legislation coming in. Um, my intelligence tells me that they’re, you know, they have to employ another nine public servants, um, to manage this programme as well as, um, my intelligence connections are telling me that they’re asking other states and territories for their people to help, um, them try and work out, um, how to run this scheme. So it’s, uh, and, and ultimately one of the great things we also need to, to make mention of here, uh, Julia is the federal government, um, is going to miss out also on, uh, federal government taxes because land tax is tax deductible. Um, so unfortunately it’s gonna be a bit of robbing Peter to pay Paul where more money’s going into Queensland and less to the federal governments for their work that they do, um, in terms of supporting, um, the Australian society.

Ben Kingsley:

So it really is, um, fascinating in terms of, um, where this is going to land and, and of course, you know, um, there’s going to be strong lobbying, um, from the industry. And also I suspect from property investors in general, um, around, um, this legislation because, um, it it’s unprecedented in terms of, um, what they’re attempting here. Um, so it’ll be interesting to see basically what, what happened. And I, I can use a recent example in Victoria, uh, where the, the Victorian labour government, um, uh, proposed to 6% developers tax. Um, and it’s an election year here, um, in Victoria and, uh, within, um, 12 days of announcing that new tax, um, it was repealed, uh, because the industry was going to do a media campaign that says property prices under the, an Andrews labour government are gonna be more expensive, uh, thanks to, uh, this new tax because they were gonna pass it on ultimately, um, to, to the consumer.

Ben Kingsley:

And that is gonna be the big challenge here in terms of with a cost like this and other, you know, sort of changes that we’ve got new legislation in Queensland, around property management, um, and minimum standards, um, as well as a, a current rental crisis, um, you know, prop property rents are going to be challenged, um, as part of that and also higher interest rates. So it is going be a challenging time, um, for tenants, um, in being able to secure property. Um, and I suspect in terms of higher rents that are gonna be paid when you combine all those elements together, plus, um, increased immigration, you’re gonna see, um, you know, property rents probably increasing over the next couple of years.

Julia Hartman:

Let’s hope they use the money raised to build, um, public housing.

Ben Kingsley:

Well, they need to do something because, uh, you know, ultimately we would hate to see them waste it. Uh, the irony here for me, um, has always been that, um, you know, by, by implementing such policy, the unintended consequences are that, um, they find that they, they, they change the dynamic of an open market and then ultimately, um, it ends up costing all of us more, um, in higher taxes because they have to do more work to, uh, to rectify and balance out the market. So that’s always something that we’ll have to wait and see how that plays out. Mm Juliet. Thank you so much for your time. Once again, your insights and your tax skills are unquestioned here. We love doing these episodes with you. Um, that finishes out, uh, episode number three, um, in terms of episode number four, um, we’ve probably got a bit of a sneak peek.

Ben Kingsley:

We’re probably gonna look more at structures in terms of the types of vehicles in which you can buy investment properties. Um, so we might be talking about buying an individual name, buying in a company name, buying in a self-managed Superfund. I think we can, we can unpack that story, um, in our next episode. Um, and if I’m forward forecasting that we’re probably looking at around sort of October, November, um, in coming back for that conversation to do episode four, um, of talking property tax with Julia Hartman. So thank you again for your time, Julia, um, as always, it’s always great chatting with you both on air and off air. Um, we have a, a great, uh, a great debate around obviously all of these implementations and so forth. So thank you very much for your time and thank you for sharing your knowledge, uh, with our audience.

Julia Hartman:

Oh, thank you for having me on Ben. I always enjoy a good chat

Ben Kingsley:

Cheer. All right, until next time, remember everyone, knowledge is empowering, but only if you act on it and take away all this great knowledge from Julia and hopefully go and talk to your tax account. It’s really important that you understand all the moving parts, whether it be claiming personal, uh, claims, uh, car travel claims, um, health insurances, all of those pieces all make up how your accountant can add value to the conversation. In addition to the property investment advice that they may give around the impacts from the tax point of view in terms of the structures that you use. So, um, please, uh, feel free to reach out to, uh, your own trusted accountant. If you’re looking, uh, to work with a new tax accountant who specialises in residential investment property, uh, feel free to also reach out to the team at, in power wealth and talk to one of our, uh, personal tax accountants in that area. Well, thanks again, everyone. Um, until the next episode, take care and bye for now.