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How to account for a bond refund in tax return?

Discussion in 'Accounting & Tax' started by Propagate, 23rd Dec, 2015.

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  1. Propagate

    Propagate Well-Known Member

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    Our last tenant wrote the carpet off. It was fairly old to begin with, but serviceable. Seems they had dogs & cats that were not passed by us first and the constant animal pee throughout the house saw off the carpets.

    The tenant has agreed to relinquish the bond toward the carpet.

    The cost to replace the carpet was roughly double the bond amount.

    Now, my understanding is the carpet must be depreciated over the next x years but the bond payout would be assessed in full as income?

    Seems a bit unfair that I would pay tax on the whole bond amount, (which is 100% going toward the carpet costs), yet can only claim the carpet in dribs and drabs over the next decade?

    Or, as the bond was for the carpet, am I able to deduct the bond from the carpet costs first, then depreciate the balance of the carpet instead?

    I.e. lets say bond was $1000 and carpet costs $2500, do I:-

    1 - Show the $1000 bond as income on my return and be taxed accordingly, then depreciate the carpet at $2500

    or

    2 - Not show the bond as income, take it off the cost of the carpet and depreciate the carpet cost balance of $1500

    Cheers.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    The bond is not income it is an offset against the damage & replacement of the carpet. They essentially have paid for part of the carpet and you would depreciate the balance.

    Similar to an insurance payout for damage- you can't depreciate what you haven't paid for.
     
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  3. Propagate

    Propagate Well-Known Member

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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It would be income, but then you could claim any expense for the new carpet - this may be a repair or depreciated.
     
  5. JacM

    JacM VIC Buyer's Agent Business Member

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  6. Greyghost

    Greyghost Well-Known Member

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    It doesn't offset.
    You put it in the "other income box" under rental income in the rental schedule for that property.
    Figures have to be shown gross not the net of the income and the expense.
     
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  7. Greyghost

    Greyghost Well-Known Member

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    How is it unfair?
    An item was broken, insurance paid for it. Net effect in theory = nil, so what should you also have your cake and eat it too with being able to claim a tax deduction?
    Cheers
     
  8. JacM

    JacM VIC Buyer's Agent Business Member

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    @Greyghost i would not mind if the repair was entirely and immediately claimable since the two would cancel each other out. However substantial repairs and reconstructions such as fences (as mentioned in the first link above) cannot always be claimed immediately.
     
    Last edited: 23rd Dec, 2015
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  9. Propagate

    Propagate Well-Known Member

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    Thanks all, as I thought, declare it as income then depreciate the new carpet. Unfair in our case as we'll pay 37% tax on the bond in 2016 but will take the next 10 years to get the difference back via depreciating the cost of the carpet.
     
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  10. D.T.

    D.T. Adelaide Property Manager Business Member

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    Bond and insurance payouts are both 'other income'. It kinda sucks but that's the way it is.

    Remember to deduct / depreciate whatever the above bought you, accordingly.
     
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  11. wylie

    wylie Moderator Staff Member

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    This thread is a classic example of why it is important to get the right answer from the right expert. It is great to get ideas and answers here but your accountant is the one who should be answering this.
     
  12. Propagate

    Propagate Well-Known Member

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    What happens in the case of a complete loss of a whole property? Say your IP burns down and the insurance pays out to replace the house, would you have to pay tax on the value of the payout then claim it back over 40 years or whatever it is?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Special rules for lost or destroyed property. When your property is damaged or destroyed | Australian Taxation Office