Assessing income from real estate and timeshare 108-04130020

Scenario

Description

1

Rental income was only received for part of the previous financial year

The income tax return (ITR) shows how many weeks the property was tenanted. If this is not for the full year, the income is to be adjusted. If the customer advises of a rental rate that applied during or after the period of the ITR, these details are coded for the rental income. If they have not advised a new rental rate, the rental income shown on the ITR must be prorated.

Bill provides the 2019-20 ITR, showing the property was only occupied for 46 weeks. There were 6 weeks between tenants in the middle of the financial year. Bill did not advise a new rate when the new tenants moved in, so for this period assume the rent was unchanged.

The ITR shows Total Gross Income of $7,300.

Allowable Deductions and Interest = $5,000.

The taxable income will be $2,300.

However, the current net rate is to be assessed so pro rata the Assessable Gross Income = $8,252 ($7,300/46X52).

The Allowable Deductions of $3,000 and Interest Expense of $2,000 are not changed, as these are usually constant whether or not the property is occupied.

The net assessable rental income is $3,252.

The same applies 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.

2

Customer has already advised a change in rental income that occurred before the end of the income tax return (ITR) period

In the above example, had Bill advised the new tenants were paying rent of $10,200 per annum, do not use the ITR to change this figure. However, use the figure to update the expenses so the assessable income would become $5,200 ($10,200 - $5,000).

3

Customer advises of a change in rental income

Jane is currently being assessed on a 2019-20 income tax return, the gross rental income was $11,960 with allowable deductions of $5,000, nil interest and net rental income of $6,960.

Jane contacts to advise the rental income has just increased to $13,000. The gross rental income must be updated from Date of Event to $13,000 with allowable deductions of $5,000 as assessed previously (unless updated allowable deductions have been provided). Net rental income is now $8,000. Rental income may be updated via an estimate. Details must be recorded on ODR.

4

Rental property is temporarily unoccupied, new tenants will be sought

Rita, who is currently in receipt of Age Pension, owns a rental property. Annual rental income of $5,000 is being maintained. This figure has been taken from the customer's 2020-21 ITR. Gross income from Rental $8,000, expenses $3,000.

Rita calls to advise the tenants have vacated the property and some of the rooms will be painted and some maintenance work done before re-letting it.

Stop the rental income. Expenses to remain as per previous assessment.

5

Rental property previously unoccupied, now occupied

Rita calls to advise the property has now been leased. The new rental income after renovations is $10,000 per annum.

Correct the Real Estate (RE) screen from the date occupied. The gross annual income is $10,000, the allowable deductions are $3,000 and nil interest. Unless Rita provides updated details of allowable deductions the net income from the rental is $7,000.

Customers can access online forms via the Services Australia website.

6

Example of assessment of income from bush block/vacant land owned by a customer

Customer owns a bush block that is separate to their principal home. That is, it is located at a different address and is not adjacent to the principal home.

The current market value is $80,000 and there is no mortgage or loan against the property.

A small portion of the block is leased to a telecommunications company who constructed a tower on it.

The telecommunications company pay an annual amount of $10,000 to the customer for the right to lease the portion of land.

The customer does not have an income tax return, therefore allow 1/3 for expenses = $3,333 (Note: if the customer has an income tax return, code the expenses as shown on the return).

Net income = $6,667.

The customer must advise the agency if the income amount changes (up or down) as this may affect the rate of payment they receive.