investment property accountant

Prepaid Rental Property Expenses | Melbourne Accountant

Investment Property Accountant in Melbourne specialising in those with investment properties and in the property development game.

Question

Can an individual claim rental property expenses paid in advance (by no more than 12 months in advance) for the year ended 30 June 2019 for items such as council rates, land tax, insurance even if there is no liability to pay (invoice received) for said items.

Answer

An expense is normally deductible against rental income when it is incurred.

According to TR 97/7, expenses are generally “incurred” when the taxpayer is definitely committed or completely subjected to the loss or outgoing or when he/ she has a presently existing liability to pay the expenses (eg, at the time the invoice was issued).

If that is the case, an expense would generally be incurred when the client received the invoice even if the client had not paid the expense.

However, if the client had paid the expense before receiving the invoice or there is no presently existing liability to pay the expense when receiving the invoice (eg, when receiving a rental property insurance renewal invoice) then you might want to consider whether the prepayment rules can apply to determine the tax treatment.

Generally, a prepaid expense relating to deductible expenses incurred by an individual is deductible over the eligible service period under the prepayment rules, rather than being immediately deductible in the year it was paid.

However, for an individual that is not carrying on a business, a prepaid expense may be immediately deductible if:

  • it is excluded expenditure (eg, if the expense is less than $1,000); or
  • amount required to be incurred by law or by a court order; or
  • the 12-month rule applies (the 12-month rule allows deductions in the year it was paid if the eligible service period is less than 12 months).

The prepayment of land tax would be deductible when paid as it is required to be incurred by law. Section 57 of the Land Tax Act provides that land tax is due and payable on the date stated in the land tax assessment notice.

Therefore, even if the due date for the payment of the land tax is prior to the end of the financial year, the prepayment of the land tax will be excluded from the prepayment rules.

The Land Tax Act (a ‘law’) requires the prepayment of the land tax.

On the other hand, council rates and insurance are not required by law to be prepaid.

However, they can be immediately deductible in the year they were paid if the eligible service period for the expenses is less than 12 months and will end in the next income year.

The expenses would also be immediately deductible if they are less than $1,000.

We are property tax specialists based in Melbourne Australia.

If you have an investment property or are a property developer in the Melbourne region looking for a new accountant feel free to give us a call and see if we can help you.