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Insurance deductibility across financial years

Discussion in 'Accounting & Tax' started by TheGreenLeaf, 9th Jan, 2016.

  1. TheGreenLeaf

    TheGreenLeaf Well-Known Member

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    Der PCers,

    Question regarding insurance (building & LL) for an IP. The case would be as follow:
    - Sign contract of Sale mi-April.
    - Go unconditional early May
    - Pay for Building and LL insurance from early May (Not owner yet but Sale is unconditional. so better to be covered)
    - Settlement early July

    How do I deduct the insurance cost in my Tax Return?
    In financial year where I sign the contract, I'm not owner of the property yet. I guess I can't claim any expense on a property I don't own.
    In financial year of the settlement, I will pay for insurance only at renewal (settlement+10months)

    Can I claim insurance cost on pro-rata of the duration during the financial year (fully paid in Year N but it cover 10 months of Year N+1, therefore I can claim 10/12 of the cost in the relevant financial year)?

    Hope the question makes sense...

    Thanks in advance
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    the date it is incurred which is generally the time you are legally obliged to pay for it. So June in this case.
     
  3. TheGreenLeaf

    TheGreenLeaf Well-Known Member

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    Thanks @Terry_w. But am I able to claim this expense in the financial year I paid it, if I'm not owner yet?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I think so. You have incurred an expense for a property you have an equitable interest in and plan to rent out. Not sure what the ATO's position is, but under tax law you have the ability to deduct the cost.
     
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  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    I can understand a building policy prior to acquisition (esp in QLD) but not a LL policy.
     
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  6. TheGreenLeaf

    TheGreenLeaf Well-Known Member

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    @Paul@PFI Where could I get advice for my case? I spent some time on the ATO website but I couldn't draw a clear conclusion.... (or couldn't map my case to their generic wording)
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You would generally go to your tax agent for advice like this. If complex a tax lawyer.
     
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  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    An example of the merits of establishing a good relationship with a tax adviser who you can ask questions as they arise or at year end.
     
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