Tax treatment of insurance proceeds
Recently Nexia Australia assisted a client who owned a rental property that suffered considerable flood damage. Because the property was insured, the client received insurance proceeds.
Our job was to determine how the insurance proceeds would be treated for tax purposes.
Broadly, the taxation treatment of insurance proceeds depends on what the insurance cover is for. For example, if the insurance proceeds were received:
- to cover the cost of repairs to the rental property – the proceeds will only be assessable income in the income year in which the repair expenditure is incurred (i.e. the proceeds will not be assessable income in the year of receipt if no repairs have been effected)
- as compensation for lost trading stock – the proceeds will be assessable income as ordinary income (because buying and selling trading stock as well as insuring such trading stock is part and parcel of business activities)
- as compensation for the destruction of depreciating assets – a balancing adjustment event will occur and the proceeds will form the termination value of the destroyed depreciating asset.
- If the termination value exceeds the adjustable value (i.e. broadly the depreciated value of the asset) – the difference would be included in assessable income; and
- If the termination value is less than the adjustable value – the difference will be tax deductible.
- as compensation for the loss of capital works – the proceeds will be capital in nature (but will not be assessable income because no deduction is available for the loss of capital works)
Please speak to your Nexia adviser if you have recently received insurance proceeds and are unsure of the correct taxation treatment.
Due date for lodgement of 2017 FBT return is 22 May 2017
The due date for lodgement and payment of any 2017 FBT liabilities is 22 May 2017 – however, if we lodge your tax return electronically, the due date for lodgement will be 26 June 2017.
Nexia recently released a news update (read here) providing a brief overview of how FBT operates (e.g. which records to keep and what are some examples of fringe benefits) as well as detailing some strategies to reduce an employer’s FBT liability.
Please contact your Nexia Adviser if you would like to discuss how any of these FBT issues may affect your organisation so that we can help you identify potential FBT risks and opportunities.
Beware of wine industry R&D schemes
The ATO and the Department of Industry, Innovation and Science (DIIS) are concerned about schemes where grape growers and wine producers are incorrectly claiming the money spent on the compulsory Wine Grapes Levy as R&D expenditure (and therefore attempt to claim the R&D offset) – as opposed to correctly claiming this levy as an ordinary business deduction (because the levy bears no connection with the R&D activities carried on).
Although you may not have been involved in such schemes, we are obliged to alert you in case you are ever contacted to enter into such schemes. Expect the ATO to be very vigilant in detecting these schemes to avoid tax.
