The tax status of insured property payouts

By Grace Ormsby

February 17 2020
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The Australian Taxation Office has reiterated its stance on the taxable status of insurance payouts for family homes, rental properties, home businesses and personal property in the aftermath of the national bushfire crisis.

The tax status of insured property payouts

In a new update, the ATO has advised that any insurance payout received for a family home or main residence is not taxable, and therefore don’t have to be included as income in your tax return.

Similarly, insurance payouts for personal assets are not taxed.

This includes payouts for damaged or destroyed household items, furniture, electrical goods, boats and private cars.

In saying this, the ATO outlined that there are “special rules” for personal asserts that costs you more than $10,000 or for collectables that cost more than $500 such as paintings, jewellery, antiques or coins.

These rules are reported to only apply if the insurance payout exceeds the asset’s original cost.

The taxable status is slightly different for properties where it was being used to produce income.

The ATO cited the use of part of a home for a home business or the renting out of a room as examples where this is the case.

In these circumstances, the insurance payout amount will be relevant when you work out if you have a capital gain or capital loss to include in your tax return, it was flagged.

A work car, or a vehicle in use for income-producing purposes, also has its own set of tax rules to be abided by in the event of an insurance claim.

If you used the car for income-producing purposes, the ATO said you will need to compare the insurance payout amount with the book value of the car at the time it was destroyed, using a balancing adjustment.

The Tax Office advised that if you claimed your car expenses using the logbook method, your balancing adjustment amount needs to be reduced by the percentage that you used the car for personal use.

Alternatively, if you only used the cents per kilometre method since you began using the car, no balancing adjustment arises, as this method takes the decline in value into account in the calculation.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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