Treatment of a refunded investment expense crossing financial years.

Discussion in 'Accounting & Tax' started by Rex, 30th Aug, 2021.

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  1. Rex

    Rex Well-Known Member

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    Here's the scenario:
    • An invoice for IP repairs was paid late in FY21 prior to the contractor completing the works
    • This expense was claimed as a deduction in FY21
    • Fast forward a few months and the contractor has failed to complete the repair work and instead provided a full refund (in FY22)
    Does the taxpayer a) amend the FY21 tax return to remove this deduction, or b) Report the refunded money as income in FY22 tax return?

    Any guidance would be most appreciated!
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The cost that was claimed should be amended to Nil. It shouldnt have been claimed unless the repairs were made.

    REPAIR expenses are deductible. Not payments for repairs. Then some may argue it was prepaid. However its not a repair. Same applies to land tax and paying it early. Its not incurred and therefore cant be paid as aland tax. Its a payment for land tax.....Deductible when assessed. If the ATO was to assess any interest you can seek remission based on the assessable reimbursemnet / refund rule.

    Lucky the funds came back. There are a lot of tradies who would have spent it and be uncontactable.

    This issue has also emerged for employers who reimburse some work costs. A case was heard recently where the employee didnt bother to claim from the boss. A bank. He was out of pocket and claimed on his tax. HE didnt incur a obligation to pay and incur a cost which would offset a reimbursement normally. He chose to incur the cost which his employer didnt want to repay (actually the case didnt say, maybe he didnt claim it) . So the amount was denied a deduction as it failed the nexus to income. It was not necessary and he didnt receive any extra income due to the cost. I recall he bought some IT related cables to patch a network server outside work hours. They also denied his travel as it was TO work. That what triggered the issue.
     
    Last edited: 1st Sep, 2021
    Ross Forrester likes this.
  3. D.T.

    D.T. Specialist Property Manager Business Member

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    Have had similar, did an amendment