tax isn’t necessarily on people’s minds at the moment, Adam O’Grady, assistant
commissioner from the ATO advised that the ATO has been working hard to
provide property investors with information and answers to their questions to
help them understand how COVID-19 and government legislated changes may affect
their rental income and deductions.
Mr O’Grady stated: "A
number of residential property investors have had their rental income adversely
affected by COVID-19, whether it is through reduced rental income, tenants
under deferred payment plans, or travel restrictions which are impacting demand
for short-term rental properties. Given these impacts, people may be starting
to worry about what this means for them. By providing this information early we
are hoping to alleviate people’s worries, so they can focus on keeping
themselves, families and communities safe.”
Should your tenants stop
paying rent or be paying less rent due to the direct effects
ofCOVID-19you will still be able to claim your normal expenses for
the investment property in your tax return, no apportionment is necessary.
When your tenants are able
to return to paying the full weekly rent which may also include some back
payments, this should be included as income in the year it was received.
Depending on the agreement
you have made with the tenant about repaying the back rent (rent in arrears)
this may take a substantial time and may need to be declared over multiple
years. If you get an insurance payout for loss of rent, you should include this
as rental income, in the year it was received.
Short-term rentals are also
impacted with restrictions on travelling and social distancing. What you can
still claim and how you apportion your deductions depend on how you were using
the property before COVID-19 and how you were planning on using it during the
COVID-19 period. This usage and intended usage will impact how you apportion
expenses between when the property was available for rent and when it was used
for private purposes.
If you are using the property
yourself or providing it to friends or family to self-isolate, this will
increase your private usage of the property and reduce the deductions you can
claim. If you had started to use the property in a different way than before
COVID-19, the proportion of expenses you can claim as a deduction may change.
To find out more go to the FAQ
COVID-19 on the ATO website.
Mr O’Grady has stated that:
"We are trying to make it easier for people to get things right and encourage
you to make use of the information we have published”.
He would also like smart
investors to be aware of some recent law changes. Depreciation is no longer a deductible on second-hand assets purchased after 1 July 2017. This impacts
people who buy a previously used property, as there will be items within the
property, such as the hot water system, dishwasher or stove that are no longer
depreciable, rather they are included in the cost base for calculating the
capital gain when the property is sold.
Also, from 1 July 2019
expenses for holding vacant land are no longer deductible for most people, this
applies even if the land was acquired or held before that date. This applies to the land you may have been claiming expenses for over a number of years.
Whilst the world has
changed significantly in the last few months, smart property investors can
still ensure they are keeping up with their tax obligations by following these tips
and tricks to avoid common mistakes such as apportioning income and expenses
for co-owned properties, getting initial repairs and capital improvements
right, claiming the correct amount of interest on your loan and keeping the
To find the answers to more
questions about COVID-19, click here.
There is also a whole raft of other available support information which you can
access on our website, such as extensions to lodge your tax returns,
low-interest payment plans to help pay existing and ongoing tax liabilities or
access to your instalments you may have already paid.
If you have
otherCOVID-19-related questions that aren’t covered in our information
please contact CommunityExternal.
Adam O’Grady is the
assistant commissioner for individuals & intermediaries at the Australian
Taxation Office (ATO).
the pay as you go instalments system across all market segments with a focus on
ensuring the instalments system is being used appropriately by educating
taxpayers and the representatives of their obligations under the PAYGI
system. In addition, he leads the risk and strategy function for individuals not
in a business where he has responsibility for the risk assessment and development
of compliance strategies for the individuals’ client experience, including
developing strategies that make easier for our clients to comply and hard not
investors obtain financial advice specific to their situation before making any
investments or decisions regarding their finances.
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Tuesday, 2 June 2020