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Tax year- when to apportion rent?

Discussion in 'Accounting & Tax' started by Paul Luck, 2nd Jul, 2015.

  1. Paul Luck

    Paul Luck Member

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    When declaring rental income (or expenses) that are spread over June/July period on your tax return do you count it as the date you received the income (or paid the expense) or the date it actually incurred.

    For example I got rental statement from my property management that includes 3 weeks rent paid from 19 June to 9 July, I was paid this on July 1st. So does this entire amount only be included on next years tax return or do I work out the daily rental income an apply a portion (19 June-30June) on this years tax return and the remaining on next years?
     
  2. Wonderland

    Wonderland Active Member

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    I'm new here but have some experience with accounting so will try and help. Although I might be wrong and I'm sure someone here will correct me. If you go by the Accrual accounting system, which is what most companys do their books by, you treat any transaction as when they occur and not when they were paid. Therefore you would work out the June proportion and claim that on your tax returns
     
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  3. dan c

    dan c Member

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    Generally, residential rental income and expenses are treated on a cash basis. So it's the date the amounts are received or paid that determines the year for tax purposes.
     
  4. Wonderland

    Wonderland Active Member

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    Oh really? I didn't know that. Thats good to know for future reference ☺
    I guess that makes more sense as cash basis looks at the time that money exchanged hands, I can image it would be bad practice to include rent that is due in your books but then the rent doesn't eventually get paid. It becomes a bad debt
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Date received by the agent = they are you for this. So even if they pay you after 1 July you would still need to bring it under last year's income.
     
  6. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Its not when cash is paid it is when the expense has been incurred. This could be different to the date the cash payment was made.

    “Incurred” essentially means that the supplier has a legal right to be paid, usually crystallised by the issue and receipt of an invoice.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Good point Mike. A repair could be undertaken on 30Jun and thereby incurred but not show up in a statement until 1 August.
     
  8. Kael

    Kael Well-Known Member

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    What if a repair is being completed on an IP. Repair is done on (lets say) 29th June. Tradesmen forwards the invoice to the Property Manager that afternoon, so the agent receives the invoice on 29th. The agent doesn't pay the invoice to the tradesmen until 2nd July (just another random date). Would this expense be in the last year or the current year?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    date paid in this case
     
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  10. Kael

    Kael Well-Known Member

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    Thanks for the fast answer mate :)
     
  11. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Yes its not as easy as you think . For example insurance renewal will not usually become a fixed expense until the premium is paid, with the payment signifying an acceptance of the offer to renew. (see Tax Ruling TR 97/7)
     
  12. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Expenses are deductible in the year that they are incurred. There is no statutory definition of the term incurred however, its meaning and the timing of deductions are discussed in Taxation Ruling TR 97/7. The timing question of when an expense is incurred can become an issue when a liability arises in one year but that liability is not paid till the next year. That is, at what point is the expense incurred, when it arises or when it is paid? The answer to that question can vary depending upon the particular circumstances of each case.

    An expense is incurred at the time you owe a present money debt that you cannot escape. You need not actually have paid any money to have incurred an outgoing provided you are definitively committed in the year of income.

    Until the work had actually commenced you are not bound to any actual monetary commitment. Depending on the contract you enter into in carrying out the repair work, the expense is incurred when the invoice for payment is issued to you.
     
  13. Paul Luck

    Paul Luck Member

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    Ok I'm still confused as above replies are giving conflicting information. In my case above is the rental income declared on this year tax return, next years, or split between the two working out the daily rate up to June 30?
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    See my post above.