Property damage or destruction – insurance payouts

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Are you a property owner? Insurance payments received for property damage or destruction may have tax implications. You should be aware of the tax implications when receiving insurance payments in relation to a property.

  1. How an insurance payment for a property is treated for tax purposes will depend on how the property was used.
  2. Property can include:
    • Real estate;
    • Other buildings;
    • Cars; and
    • Personal or work related items.
  3. Where a house is damaged or destroyed and is a taxpayer’s main residence, capital gains and insurance payments will not be assessable for tax purposes.
  4. However, to keep the main residence exemption when living elsewhere while rebuilding or repairing a home, both of the following conditions need to be satisfied:
    • The occupier moves back into the home as soon as practicable on completion of building works; and
    • The occupier lives there for at least three months.
  5. Where the property has either a partial or full income-producing purpose, insurance payments relevant to the income-producing portion may trigger a capital gains tax event or become assessable income.
  6. If a payout is in relation to repairing a rental property, the taxpayer is still entitled to deductions where the funds are used towards repairs as long as the amount received is included as assessable income.
  7. For more information and scenarios, click here.

Remember: Insurance payments in relation to a taxpayer’s main residence is ignored for tax purposes. Contact us if you require further information.

This article was originally published on 21/03/2014 and is current as at that date.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.

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