The weather in Australia can be unpredictable, resulting in intense conditions that can cause damage and harm to their surroundings.
Over the last few years, extreme weather conditions (such as fire, floods and intense storms) in some parts of the country have resulted in extreme damage. If this occurs, individuals need to determine the tax treatment of any insurance payouts or relief payments they may receive.
Usually, individuals are unlikely to experience tax consequences for payments for personal property or assets in events such as these. Personal property or assets include your family home and household assets.
There are special rules though for
- Personal assets that cost more than $10,000
- Collectables that cost more than $500 such as paintings, jewellery, antiques or coins
These rules only apply if the insurance payout exceeds the asset’s original cost.
For example, Peter owned a painting by a famous artist worth $750 that is a collectible, which was destroyed in a bushfire. The insurance payout for this painting will be included in his tax return when he works out his capital gain or loss at the end of the year.
However, if an individual’s income-producing assets incur damage, then they will need to determine the proper tax treatment of the payouts or relief payments that they receive and the costs involved in repairing or replacing the assets.
An insurance payout for a property used to produce income will have tax consequences, for example, if you used a part of your home to run a home business or you rented out a room.
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. If you are a small business operator, you may be entitled to small business capital gains tax (CGT) concessions. If your asset is destroyed, you can roll over the CGT liability.
If you have been working from home and using personal assets to produce income (such as a personal laptop you are repurposing) then determining which tax treatment applies could get complicated. You may have to talk to the ATO or us to clarify the specificities of your situation.
