Claiming Deductions Prepaid Expenses IP=>PPOR

Thanks for all the great information that has been shared by everyone to date.

I moved out of my PPOR and rented it out and as a result for the 08/09 financial year have claimed deductions pro-rata for water rates, council rates and insurance.

In January next year (2010) I am thinking of moving back into my place. I "prepaid" water rates/council rates/insurance in 08/09 for the 09/10 financial year.

I know I am able to claim "prepaid" expenses this financial year for the next financial year, but if I do how do I make an adjustment in next years tax return for the period of time I live in the property next financial year?

I've looked through every page in the forum but haven't found anybody that has asked about this scenario.
 
Very interesting question - one that is very rare in practice I must say. Either amend prior year Return upto the actual date the property stopped being an IP (which may impose extra tax and penalties) or bring it in as an income adjustment in your next Return.
 
I would just bring it into your 09/10 tax return as income to save having to do any amendments. Call it 'Other Income' in your rental section. A way of looking at it is your PPOR is re-imbursing your IP for the expense. To be honest I'm not sure how the ATO would want it done, but if you're in the same tax bracket both years, I don't think they'll really care, just so long as you do do the adjustment.
 
Provided you did not have the intention to reoccupy the house, but to hold as a rental property, then there may be nothing in law that requires you to amend a prior return nor include any additional amount as income in this return.

The ATO could argue that you had a mixed intention at the time of payment and amend last years return. BUT provided you had wholly intended to keep it as an investment at the time of prepayment, then there is no basis for apportionment that I know of.

The ATO could argue that some of these expenses have been recouped within the definition of s.20-25 ITAA97:

" (a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; "

It is arguable that being able to enjoy those deducted expenses personally is a "recoupment" - in which case the ATO could assess you on the rates component this year.

If this does not fall in the definition of a recoupment, then none is assessable this year.

I suggest you ask the ATO for a private ruling and then enlighten us on where the ATO draws the line.

Thanks for a good question !!!

Cheers,

Rob
 
I rang the ATO and asked them the specific question.

They said to claim the entire prepaid amount in this years (08-09) tax return, and to submit an amendment request for the 08-09 year (stating the non tax deductible amount) if I was to move back into the property sometime during the 09-10 tax year.

I also asked them what to do if I paid two years worth of council rates in 08-09 (in the scenario that I went away and wanted to make sure that the rates were paid). They replied that I could claim one years worth in 08-09 and another years worth in 09-10.

Hope this helps somebody at some stage in the future.

Thanks FletcherTax, Leikela, Rob G
 
Prepaying 2 years, you are only *LEGALLY* allowed to deduct the first year's worth.

As regards amending your return for a 1 year prepayment only partially used ... this is what the ATO would *LIKE* you to do.

Cheers,

Rob
 
Hi Rob,

From the guide: Rental Properties 2008

"If you prepay a rental property expense – such as insurance or interest on money borrowed – that covers a period of 12 months or less and the period ends on or before 30 June 2009, you can claim an immediate
deduction. A prepayment that doesn’t meet these criteria and is $1,000 or more may have to be spread over two or more years."

Are you sure about only ever being able to claim one years worth?

Kev
 
Hi Rob,

From the guide: Rental Properties 2008

"If you prepay a rental property expense – such as insurance or interest on money borrowed – that covers a period of 12 months or less and the period ends on or before 30 June 2009, you can claim an immediate
deduction. A prepayment that doesn’t meet these criteria and is $1,000 or more may have to be spread over two or more years."

Are you sure about only ever being able to claim one years worth?

Kev

You don't get an immediate deduction, you claim over time if the prepayment is $1000 or more.

i.e. If it refers to a period more than 12 months OR ends after the next financial year then you must apportion deductions to the relevant years.

Cheers,

Rob
 
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