Property damage or destruction – insurance payouts

Are you?
– A property owner?

At a glance:
– Insurance payments received from 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.
– Contact us if you require any clarification or advice.

The tax implications of an insurance payment for a property will depend on how the property was used.

If the damage or destruction relates to a taxpayer’s main residence, capital gains and insurance payments will not be assessable.

To maintain 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 had lived there for at least three months.

Taxpayers can apply the main residence exemption paying no CGT tax on disposal of the vacant land on which the destroyed main residence was built.

Where the property was either partially or fully used for income-producing purposes, insurance payments relevant to the income-producing portion may trigger a capital gains tax event and be treated as assessable income.

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.

Remember:
– Insurance payments in relation to a taxpayer’s main residence are ignored for tax purposes.