Water Usage Reimbursement = income for tax purposes?

Just wanted to ask a question as I was reviewing my tax return this year. For 2 of my properties I pay for the tenants water usage and then get that reimbursed from the tenant. This shows up on my end of year statements under income and as such the accountant has included these amounts as income under "Other rental related income".

My question is this - if I am paying for these amounts with post tax income, and then getting reimbursed, won't adding this to my rental property's income amount in my tax return then mean I'm getting taxed twice on this amount? Particularly as I cannot claim these amounts as an expense (this is water usage not water rates).

Thanks in advance!

 

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What's your question?

 

How come you can’t claim them as an expense? I’ve always claimed tenants water use as an expense (although I may have it wrong?).

 

Yep that's right, sorry if I made it confusing!

The addition is that as the tenant repays me, this is added as income on my ledger, which the accountant then adds as income to my tax return. My question is around if this is correct. Hope that clears it up (or it might be as clear as mud, ha!)

 

I was under the impression no, and my accountant doesn't seem to include it in my return. From the below link:

Rental properties 2020

Expenses for which you are not able to claim deductions include:

• expenses not actually incurred by you, such as water or electricity usage charges borne by your tenants

 

If you pay it then isn’t the cost borne by you? My accountant includes it. I don’t know what the correct way is though.

 

I know as much as you

Might depend if the tenant is reimbursing you or not?

 

I’d include it as expense and income OR not include either. Doesn’t make sense otherwise.

I don’t on charge the tenants but I don’t see how it would make a difference. It’s an expense that you are incurring to rent the property. Maybe ask your account next time. They might have overlooked it. Water usage is charged different in different states too. Some states it is billed directly to the tenants (like electricity), some states it’s billed to the owner.

 

You add the water payment from the tenant as other rental income and deduct the amount you pay to the water company as a rental expense. Any difference, eg you pay the supply charge, becomes a net deduction that reduces your tax bill. You are not paying out of post tax income, you are paying it out of the rental income plus tenants contribution.

 

It can make a difference, I had a tenant somehow use over 1k worth of water in a year.

Not sure if its state based, I have 2 in NSW, one is regional and one in Sydney. Sydney the usage bill goes direct to the tenant and I just get the rates and sewerage. The regional one I get everything so pay the whole bill and get the reimbursement on usage.

Yep, just sent my accountant a query when I noticed it earlier today.

 

Thanks, that would make sense to me, but my accountant has removed the consumption charges in the deduction.

 

Looks like my accountant checks their emails on the weekend and has gotten back to me. It is as @Mark F has mentioned. Thanks!

 

You incur $100 in water rates
You charge the tenants $60 usage
This means you have a $100 expense and $60 income

 

But wouldn't you be paying it from your before tax rental income for tax purposes? Unless neg geared in which you'd be claiming it anyway so only fair to declare any amounts from tenants as income, and pay the tax.

I think that means you couldn't claim things like your tenants electricity bill that's in their name and they pay for it.