Insurance claim payout for IP to be included as income in Tax return

Hi,

I'm a new PI & this is my first insurance claim.

My previous tenant caused about $7K worth of damages to my IP, mostly carpet damages, but other things like broken glass window, hole in wall, broken fly screen etc ...

Insurance claim settlement was $6.5K less $1.5K excess, so payout was $5K received in mid-July.

My property manager is finding it difficult to contact my current tenant to try and organise a carpet replacement, the tenant has not been responding to messages (but continues to pay their rent on time) ... I understand it would be inconvenient for them to have carpet replacement done whilst they are living there, so I have advised my property manager I will hold off replacing the carpet at this stage.

I have instructed my PM to organise repairs for broken glass window, hole in wall, broken fly screen etc ...

My questions are:

1. Does the insurance claim payout need to be included as income in my 21/22 tax return? If so, it is it the $6.5K or $5K to be included as income?

2. Can I claim for the repairs (broken glass window, hole in wall, broken fly screen) in my 21/22 tax return?

3. if the carpet is replaced in the 21/22 period, do I organise for my QS to update my depreciation schedule & claim carpet replacement as a depreciable item?

4. Is the balance of the value on the old carpet to be written off/scrapped, if so I can claim it a deduction in the 21/22 period ?

Thanks in advance

NewGuy88

 

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There's a recent case where the judgement didn't answer all the related questions, but said the payout is income.

https://www.ato.gov.au/law/view/document?docid=JUD/2021ATC10-572/00001

 

1. Yes. The sum received is $5000
2. Yes, If the repairs are completed and you retain receipts and other evidence the cost was incurred
3. No.Your tax agent can easily commence depreciation of the new capital expenditure.
4. Yes. If it is able to be. Sometimes it may have moved to a pool and then it cant be scrapped. The time it is scrapped is when the carpet was damaged and has no further effective life. Is that in the 2021 or 2022 tax year ? You seem to indicate te old carpet remains in place so that event may not have occurred yet.

 

Umm....you've claimed on insurance presumably for property damage, but the tenant is still there?

 

Clearly comprehension wasn't working too well today.

So....new tenant moved in without the repairs being done? Not sure I'd advise this. Mainly because then it impedes the repairs to actually get done, as you've noticed with the tenant's lack of enthusiasm getting the carpet replaced, the lower quality tenant if they are willing to live in a home with issues, and often you'd get a lower rent because the property isn't in the best condition.

 

I don't know about you, but my insurance claims have taken 2-6 months to process this past year. I recently incurred some damage to an IP, so we fixed it up and got new tenants in ASAP, and made a retrospective claim with the insurer, which was luckily accepted.

 

The last rental I was in they wanted to replace floors so I said yes if you waive a week's rent.

Moved a few things, took 30 minutes and the floor laying took 2 days so win-win for LL and tenant.

 

Only had one this year and it was through EBM. Very quick! Probably took a week.

 

My claim took about 2 months to get approved, my current tenants moved in a week after the previous tenant left, so I only had a week to organise quote for repairs and major bond clean ....

 

Thanks so much for your detailed answers Paul, much appreciated ... I haven't replaced the old carpet as yet, but plan on replacing it in 21/22 FY ...