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Assessing income from real estate and timeshare 108-04130020

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This document provides information about the assessment of income from real estate.

On this page:

Assessing income from real estate and timeshare

Coding overseas real estate

Coding REBS screen using Process Direct

Coding the REBS screen using Customer First/Customer Record

Assessing income from real estate and timeshare

Table 1

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Step

Action

1

Change in percentage of ownership

Is the contact to advise a change in the customer's or partner's percentage of ownership, including due to the death of either the customer or partner?

  • Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.Yes, update the details of the change in percentage. Note: if there is a decrease in the percentage of ownership, discuss if this is a result of gifting
  • Phone contact: Typically done by Smart Centre staff. Staff may complete this step if they are trained.Yes, advise the customer to provide details. Request verification of change, if required. See Requesting information (CLK). Procedure ends here until all information is provided
  • No, go to Step 2

2

Has the customer left their principal home due to illness?

3

Accommodation charges and accommodation bonds

If a customer has left their principal home to enter a care situation:

  • Before 1 January 2017, the former home and any rental income may be exempt from the income test and assets test, if they are paying either an accommodation charge or accommodation bond periodic instalments to the aged care home
  • On or after 1 January 2017, the net rental income from their former home is assessed as ordinary income. This may affect the customer's rate of income support payments. The former principal home will be an exempt asset under the assets test for 2 years from the day they vacate it

If the accommodation bond has been paid in a lump sum, any rental income received is maintained as income of the customer. This is not subject to the exemption related to the periodic accommodation bond payments.

For more information, see Vacation of principal home due to illness.

Does customer have other property?

4

Does the customer have a timeshare in a holiday home, unit, caravan, houseboat or other property?

5

No Real estate details form (MOD R) is required

Before December 2015

If the customer let their timeshare in a property, the net income they receive for the rental period was assessable.

The net rental income was coded on Other Income (OIN) screen using the Income Type: OTH.

From December 2015

Rental income from a timeshare in a property is not recorded.

The investment is coded as a savings investment on Direct Investments (SVDI) screen and subject to deeming.

See Managed investments - adding a new investment.

Procedure ends here.

6

Previous financial year rental income

Assessable rental income for the current financial year is generally based on the rental income in the previous financial year.

If financial statements are required, go to Step 7.

Exceptions to this rule include cases where:

  • Rental income has changed. For example, an increase or decrease in the weekly rent. See Resources page for an example
  • Rental income has permanently ceased. For example, property has been sold.
  • Rental income has temporarily ceased. For example, property is vacant.
  • Rental income was received for only part of the previous financial year. For example, the property was purchased part way into the financial year, so rental income for that financial year does not reflect the current rate of income. See Resources page for an example. Go to Step 7
  • Rent arrears paid due to suspending tenant's rent during the Coronavirus pandemic. Go to Step 10

7

Financial statements required

To calculate the rental income to be assessed, copies of the following are needed:

  • financial statements - profit and loss statement, balance sheet and depreciation schedule
  • business and personal income tax returns (ITRs), including rental property schedules

Can the customer provide the relevant documents?

8

Financial statements and income tax returns (ITRs) are not available

If the real estate is linked to a business update details, request documents and set reviews in either:

To update in:

  • Process Direct:
    • Go to the START screen > search for and select the Self-Employment workflow
  • Customer First/Customer Record:
    • Go to the Real Estate and Business Summary (REBS) screen

The Request for Information (RFI) workflow or a QSS32 letter may be used to specify required documents.

  • Request any other evidence the customer can supply, if required
  • Send a Real estate details form (MOD R)
  • If property is linked to a business, send a Business details form (MOD F), if not already received

The 'one third' rule must be used to calculate net rental income, if there are no net income details from a previous financial period. If the rental income is from a newly rented or newly purchased property, the 'one third rule' must be used until financial statements are available.

Use the 'one third rule' in exceptional cases and as an interim measure only. If the customer did not lodge an income tax return, as their income was too low, they must provide a profit and loss type statement. If the profit and loss statement is not for a full year, annualise the figure, for example, the property was bought or rented less than a year ago.

Phone contact: Typically done by Smart Centre staff. Staff may complete this step if they are trained. Advise customer to provide details. Request verification of change, if required. Procedure ends here until all information is provided.

Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.

For Process Direct, see Table 3 > Step 1.

For Customer First/Customer Record, see Table 4 > Step 1.

9

Customer has income from rental property - and financial statements and ITRs are available

Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.

If the real estate is linked to a business, add or update details in either:

  • Process Direct:
    • Go to the START screen > search for and select the Self-Employment workflow
  • Customer First/Customer Record:
    • Go to the Real Estate and Business Summary (REBS) screen

If the property is linked to a business, before coding the Real Estate (RE) screen, code the business on:

  • the Real Estate/Business Identifying (REBI) screen, and
  • the Business Detail (BUS) screen

The customer must uniquely identify the location of any real estate or business site they own or have an interest in.

For more details, see:

If income from rental property has permanently ceased:

If income from the rental property has temporarily ceased:

The personal or business ITR contains a rental property schedule with information about:

  • the income from the property, and
  • the expenses related to maintaining the property

Profit and loss statements provide further details of the income and expenditure related to the real estate and/or business. This must be recorded on the system.

Income tax provisions allow primary producers to defer income. These provisions do not apply under social security law relating to income.

There are categories of deductions allowable for taxation purposes. They are recorded on the profit and loss statement to reduce income. Some of these expenses are not allowable under Social Security law. They cannot be used to reduce the assessable income from real estate or business operations.

The following deductions are allowed for tax purposes but not allowed for social security purposes:

  • capital depreciation
  • special building write off
  • construction costs, and
  • borrowing costs (for example, loan establishment fees)

For more information on deductions, see the References page and Business deductions.

Calculate net income as follows:

Property Occupied for full financial year

Gross income from financial statements - (allowable business deductions + interest on mortgage) = Net income.

Property Occupied for part financial year

Gross income from financial statements/number of weeks occupied x 52 - (allowable deductions for the year + interest on mortgage) = Net income. See the Resources page for an example.

The Allowable Deductions and Interest Expense are not changed, as these are usually constant whether or not the property is occupied.

When the property was purchased less than a year ago, a profit and loss statement is to be supplied if ITR details do not represent the current income. The income and expense figures will need to be annualised for coding.

Gross income from financial statements/number of weeks occupied x 52 - (allowable deductions relevant to the period of rent paid/number of weeks occupied x 52 + interest on mortgage/number of weeks occupied x 52) = Net income.

Note: the Guide 4.3.8.30 directs that the purpose test operates to make sure that only interest payable on a loan used to buy a property is deductible against the rental income. For a link to 4.3.8.30, see the References page.

If more information is needed:

Once all information is available and the net income is calculated:

10

Rental income arrears due to Coronavirus pandemic

Before recording any rental income arrears, check if the rental income is exempt from assessment. The customer is entitled to an exemption if the customer entered aged care prior to 1 January 2017. Check the Real Estate/Business Identifying (REBI) screen, if the real estate type is 'EXA' or 'EXP' do not record rental income arrears. Procedure ends here.

If the rental income was removed when the customer stopped getting rent, any lump sum payment of rental income received by the customer for periods where they suspended their tenant's rent payment will be assessed on the Other Income (OIN) screen.

  • Divide the amount of rent arrears paid by the number of weeks/days it represents
  • Multiply that amount by 52 weeks or 364 days
  • Deduct the annual expense amount listed on the Real Estate and Business Summary (REBS) screen at the time the rent was suspended
  • Code this amount on as OTH income type on the OIN screen and assessed for the number of weeks/days it was paid for.

For example, the customer received $3,600 for 9 weeks rent and the annual expenses at the time the rent stopped to be paid were $10,000.

($3,600/9) x 52 = $20,800 per annum. Deduct $10,000 expenses to give $10,800 income to be coded for 9 weeks.

A manual follow up review is to be coded to remove the income at the end of the assessment period.


Coding overseas real estate

Table 2

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Step

Action

1

Overseas property

If overseas property, code real estate on the Foreign Income and Assets (FID) screen.

Code the asset value in the relevant foreign currency. The system will convert it to $A.

The system will update the asset value per variations in exchange rates each month.

A property ID number is not generated on the FID screen.


Coding REBS screen using Process Direct

Table 3: For service centre and processing staff

Expand table

Step

Action

1

REBS

Is the real estate already on the Real Estate and Business Summary (REBS) screen?

2

Select property from REBS

Expand the relevant property from REBS

Note: real estate information must be re-coded if the customer's relationship status has changed since the last update.

If income has:

3

Update details of the new property

Update the Real Estate Details (REBS) table with the required details. See Assessing and coding real estate details.

  • The customer must precisely define the location of any real estate or business site they own or have an interest. If the real estate is linked to a business, code the business details before the real estate details
  • If relevant, code the Business Details
  • After selecting a Real Estate or Business Type, the relevant Real Estate Details fields will generate for completion

Under the Real Estate Details, code these fields:

  • Business Link ID: displays the business Ref Id if the real estate is linked to a business. Ref ID generates after selecting the business type from REBS and coding the business Income and Asset Details. Note: real estate should only be linked to a business where it is unavoidable. For example, a non-primary production business where there is a liability over all business assets (real estate and other assets) and the net asset value of the business (excluding the value of the real estate) is negative. Real estate should not be linked to a business unless advised and assessed by a Complex Assessment Officer (CAO)

4

Continue coding Real Estate Details
  • Event Date: the date of the change in circumstance. For example, the date the property was rented out or came into ownership
  • Curtilage Type: optional, update if the property is the customer's principal place of residence and the customer is assessed under Grandfathered (GRF), Private Land Use (PLU) or Extended Curtilage (EXT) provisions
  • Actual Valuation Date: the date of the previous valuation. This field does not need to be manually updated
  • Asset Valuation Source: code the customer estimate CLI or valuation code
    • Note: PUR or AVO related codes are no longer valid
    • If the property is linked to a business, CLI is not valid (as it will not allow the current market value to be input). Code ‘NVE’ if the source of the current market value is a client estimate
  • Estimate Value: if the property is linked to a business, this field is coded with the book value of the asset, as included in the net assets of the business. Otherwise leave blank
  • Asset Own Customer (%): the percentage ‘interest’ the customer has in the property
  • Asset Own Partner (%): the percentage ‘interest’ the partner has in the property
  • Current Market Value ($): If the property is:
    • linked to a business, this field is to be coded with the current market value. The difference between the Estimated Value and the Current Market Value will be automatically applied to the net asset value recorded on the Business Detail (BUS) screen for the linked business. If the current market value is from a client estimate, the valuation source will need to be coded as NVE
    • not linked to a business, this is the value of the whole item of real estate
  • House & Curtilage Amount ($): the value of the home and up to 2 hectares of private land around the home used mainly for domestic purposes. Any other land attached to the home is an assessable asset. Each customer can have only one item of real estate with a home and curtilage amount coded. For more information. see Assessing house and curtilage
  • Mortgages or Loan. ($): the amount of any loans or mortgages held against the property
  • House Contents ($): the current total net market value of any house contents held on the property. The percentage asset ownership/apportionment is not applied against the House Contents, Livestock or Other Asset amounts
    • If the customer is partnered, 50% of livestock, house contents and other assets are maintained against each member of the couple
    • If single, 100% of livestock, house contents and other assets are maintained against the customer
  • Other Assets ($): the net current market value of any other assets linked to the property. For example, plant/machinery, goodwill, stock, grain. The % owned is not applicable here
  • Livestock ($): the total net current market value of any livestock held on the property. The % owned is not applied to this field. But if the customer has a partner, any amount in the Livestock field will be split 50-50 between the couple

5

Finalise coding Real Estate Details
  • Income Own Customer (%): the customer’s percentage of the income derived from the property
  • Income Own Partner (%): the partners percentage of the income derived from the property
  • Income Valuation Source: the source on which the income valuation figures are based
  • Gross Annual Income ($): the total income derived from the property
  • Annual Interest ($): the interest amount paid for a loan or mortgage, in whole dollars. This is usually obtained from the rental property schedule of the business, a personal income tax return (ITR) or a profit and loss type statement
  • Allowable Income Deductions ($): per annum - the amount of allowable income deductions should not include any of the annual interest expense
  • Valuers Job Number: used by valuation providers for each valuation
  • Valuers Property Number: the number assigned by the valuation provider when they first value the property
  • Check the information is correct
  • Record all available details on the Real Estate Valuation Information. This includes land area, number of rooms, type of construction, improvements, authority to inspect and details of person to be contacted for an inspection. Use the Other Circumstances and Directions to Property fields to record any extra free text comments, for example, rental income. Full details will promote a successful and accurate valuation
  • Complete Real Estate Purchase Details if known
  • Select Save
  • Update:
    • Receipt Date
    • Channel
    • Service Reason: if the system does not select a default Service Reason, select the most relevant Service Reason for the update. For example, the customer's main payment type
  • Select Save

If net income has:

6

Real estate income has changed
  • Expand the relevant property from REBS
  • On the Real Estate Details line, select Add icon and code Create Real Estate Details:
    • Event Date: date of the change. This may be the date the customer became aware of the change for example, date tax return was signed
    • Gross Annual Income ($): the new total annual income
    • Allowable Income Deductions ($): per annum. Use the customer's estimate or apply the interim 'one third rule' until a profit and loss statement is returned. Don't include any interest expense as this is coded separately in the Annual Interest field, below
    • Annual Interest ($): can only be coded if there is an amount in the Mortgage or Loan ($) field. If interest expense is an allowable deduction but the mortgage is not an allowable deduction, code $1 in the Mortgage or Loan ($) field.
    • For help with allowable liabilities and apportionment, see Loans and liabilities against assets
    • Code other fields as appropriate
  • Select Save

If the customer cannot supply all the details or extra information is needed:

  • Request Real estate details form (MOD R) and request tax returns and profit and loss statements. See Requesting information (CLK)
  • A Business details form (MOD F) may also be needed if a business has an interest in the property

Go to Step 9.

7

Real estate income has permanently ceased

If the property is vacant but the owner still intends to use it as a rental property (temporarily vacant/untenanted), go to Step 8.

If the income has ceased because the property is no longer a rental property:

  • Expand the relevant property from REBS
  • Select Add icon and code a new Real Estate Details entry:
    • Event Date: the date income from rental property ceased
    • Gross Annual Income $: code '0'
    • Allowable Income Dedns $ pa: code '0'
  • Select Save
  • Update:
    • Receipt Date
    • Channel
    • Service Reason: if the system does not select a default Service Reason, select the most relevant Service Reason for the update. For example, the customer's main payment type
  • Select Save

Do the real estate assets need updating?

For example, they are sold, partially sold, gifted or no longer assessable.

8

Real estate income has temporarily ceased
  • Expand the relevant property from REBS
  • On the Real Estate Details line, select Add icon and code Create Real Estate Details:
    • Event Date: the date income temporarily ceased
    • Gross Annual Income ($): code '0'
    • Allowable Income Deductions ($): unchanged
    • Annual Interest($): unchanged
  • Select Save
  • Update:
    • Receipt Date
    • Channel
    • Service Reason: if the system does not select a default Service Reason, select the most relevant Service Reason for the update. For example, the customer's main payment type
  • Select Save

9

Finalise activity
  • Select Assess
  • Check the outcome on Entitlements (ELD) screen and select Finish
  • Finalisation Notes pre-fill with the income and assets update details. Add any extra details as needed
  • Select Finalise to complete the transaction

Notes from the update will copy to the Document List (DL) in all systems.

Advise the customer of the outcome.


Coding the REBS screen using Customer First/Customer Record

Table 4

Expand table

Step

Action

1

REBS screen

Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.Is the real estate already on the Real Estate/Business Summary (REBS) screen?

2

REBS screen selection

Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.

'S'elect the relevant property from the REBS screen.

Note: real estate information must be re-coded if the customer's relationship status has changed since the Real Estate (RE) screen was last updated.

If income has

3

Update details of the new property

Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.

Update the Real Estate/Business Identifying (REBI) screen with the required details, see Assessing and coding real estate details.

  • If the real estate is linked to a business, the business details must be entered before the real estate details
  • If relevant, code the Business Detail (BUS) screen
  • If the real estate is linked to a business the income, deduction and assets fields will not be presented. On the Real Estate (RE) screen, code the following fields:
    • RAF Code: used to identify the income and asset value of the farm is exempt from the gifting provisions under the Retirement Assistance for Farmers (RAF) Scheme. The income and assets will be included in the Net Income/Net Assets calculated on this screen but will not be included in the Total Income/Asset calculation
    • Bus Link: displays the business Ref Id if the real estate is linked to a business. In this case, the business details must be coded before the real estate details - this is done via the Business Detail (BUS) screen. Coding the BUS screen will generate the Ref Id
      Note: real estate should only be linked to a business where it is unavoidable. For example, a non-primary production business where there is a liability over all business assets (real estate and other assets) and the net asset value of the business (excluding the value of the real estate) is negative. Real estate should not be linked to a business unless advised and assessed by a Complex Assessment Officer (CAO)

4

Additional coding of RE screen

Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.

  • Event Date: the date the change in circumstance occurred, for example, the date the property was rented out or came into ownership
  • Estimate Value $:
    • If the property is linked to a business, this field will display and is coded with the book value of the asset, as included in the net assets of the business
  • Actual Valuation Date: the date of the previous valuation. This field does not need to be manually updated
  • Current Market Value $: If the property is:
    • not linked to a business, the amount must represent the value of the whole item of real estate
    • linked to a business, this field is to be coded with the current market value. The difference between the Estimated Value and the Current Market Value will be automatically applied to the net asset value recorded on the Business Detail (BUS) screen for the linked business. If the current market value is from a client estimate, the valuation source will need to be coded as NVE
  • Asset Valuation Source: Code the customer estimate CLI or valuation code
    • Note: PUR or AVO related codes are no longer valid
    • If the property is linked to a business, CLI is not valid (as it will not allow the current market value to be input). Code NVE if the source of the current market value is a client estimate
  • Current House & Curt. $: the value of home and the private land (up to 2 hectares) surrounding the home that is used primarily for domestic purposes, also known as curtilage. The value of any land attached to the home, which is not regarded as curtilage is an assessable asset. Only one item of real estate with a home and curtilage amount can be coded for each customer. Full details on house and curtilage assessments can be found in Assessing house and curtilage
  • House Contents $: the current total net market value of any house contents that are held on the property. The percentage asset ownership/apportionment is not applied against the House Contents, Livestock or Other Asset amounts
    • If the customer is partnered, 50% of Livestock, House Contents and Other Assets are maintained against each member of the couple
    • If single, 100% of the Livestock, House Contents and Other Assets are maintained against the customer
  • Other Assets $: the net current market value of any other assets linked to the property - for example, plant/machinery, goodwill, stock, grain, etc. The % owned is not applicable here
  • Livestock $: the total net current market value of any livestock held on the property. The % Assets Owned: is not applied to this field, but if the customer has a partner, then any amount coded in the Livestock field will be split 50-50 between customer and partner
  • Mortgage/Loan $: the amount of any loans or mortgages held against the property

5

Finalising coding of RE screen

Face-to-face contact: Typically done by service centre staff. Staff may complete this step if they are trained.Processing Team: Typically done by specialised processing teams in a service centre or Smart Centre. Unless otherwise stated, staff may complete this step if they are trained.

  • Net Income $: net income derived from the property
  • Net Assets $: net monetary value of the assets
  • % Income Owned: the customer's percentage of the income derived from the property
  • % Asset Owned: the percentage 'interest' the customer has in the property
  • Gross Annual Income $: the total income derived from the property
  • Income Valuation Source: the source on which the income valuation figures are based
  • Annual Interest $: the interest amount paid (in whole dollars) for a loan or mortgage. This is usually obtained from the rental property schedule of the business, a personal income tax return (ITR) or a profit and loss type statement. Interest payments on a mortgage for the property concerned are allowed as an additional deduction from the amount of income to be assessed
  • Allowable Income Dedns $ pa: the amount of allowable income deductions should not include any of the annual interest expense
  • Valuers Job Number: used by valuation providers for each valuation
  • Valuers Property Number: the number assigned by the valuation provider when they first value the property
  • Source: and DOR:
  • Press [Enter] to go to the Real Estate/Business Summary (REBS) screen and the Real Estate Valuation Information (REVI) screen
  • Check the information is correct. Note: all property information available must be recorded on the REVI screen. This includes land area, number of rooms, improvements, authority to inspect and details of person to be contacted for an inspection. The Other Circumstances and Directions to Property fields allow free text. Use these fields to record any additional comments, for example, rental income. Providing all available information will promote a successful and accurate valuation

If income has:

6

Real estate income has changed
  • Update the income details
  • Enter the Source and DOR fields when selecting the property to be updated
  • Code the RE (asset) screen with the:
    • Event Date: date change occurred. This may be the date the customer became aware of the change. For example, date tax return was signed
  • Go to the next screen
  • Code the RE (income) screen with the:
    • Gross Annual Income $: the new total annual income
    • Allowable Income Dedns $ pa: use the customer’s estimate of allowable income deductions or apply the interim ‘one third rule’ until a profit and loss statement is returned
    • Annual Interest $: can only be coded if there is an amount in the Mortgage/Loan field. If the interest expense is an allowable deduction but the mortgage is not an allowable liability, an amount of $1 must be recorded in the Mortgage/Loan field. For help with allowable liabilities and apportionment, see Loans and liabilities against assets
  • Code other fields as appropriate
  • If the customer cannot supply all the necessary details or extra information is required, use the:
    • Request for Information (RFI) to issue a Real estate details form (MOD R) and request tax returns and profit and loss statements. A Business details form (MOD F) may also be required if a business has an interest in the property
    • Mail Forms (MAIL) screen in Process Direct if a form needs to be sent

Go to Step 9.

7

Real estate income has permanently ceased

If the property is vacant but the owner still intends to use it as a rental property, (temporarily vacant/untenanted), go to Step 8.

If the income has ceased because the property is no longer a rental property, update the following fields on the Real Estate (RE) screen:

  • Event Date: the date income from rental property ceased
  • Gross Annual Income $: code '0'
  • Allowable Income Dedns $ pa: code '0'
  • Source: and DOR:
  • Action: code with an 'I'

Do the real estate assets require an update (for example, sold, partially sold, gifted or no longer assessable)?

8

Real estate income has temporarily ceased

If the income has ceased temporarily, code the following fields:

  • Event Date: the date income temporarily ceased
  • Gross Annual Income $: code '0'
  • Allowable Deductions: unchanged
  • Allowable Interest: unchanged
  • Source: and DOR:
  • Action: code with an 'I'

9

Finalise activity
  • Record the details on a DOC
  • Advise the customer of the outcome