Australians who lost property in a natural disaster have been reminded that they can make a tax claim and potentially recover thousands of dollars.
Natural disasters and extreme weather events cost the insurance industry $5 billion between November 2019 and February 2020, while the 2007 Queensland floods cost the Australian economy $2.19 billion.
Climate change means a greater number of homeowners are also becoming flood and bushfire prone, with one-in-19 to become uninsurable by 2030.
However, according to BMT Tax Depreciation CEO Bradley Beer, there are ways for affected Australians to recoup some of their losses through a tax depreciation schedule.
A tax depreciation schedule is a report that outlines the costs and asset values associated with a property, along with an annual value for depreciation.
When disaster hits, the landlord’s tax agent or accountant can then use the schedule to determine the remaining value when the property was destroyed.
“Natural disasters devastate everyone, not just landlords. But landlords need to know there are things they can do to recoup some damages if they aren’t adequately insured,” Beer said.
“If an asset is destroyed and no insurance payout is received, the landlord can claim the undeducted depreciable value of the asset through a process called scrapping.
“When we talk about scrapping, it’s normally in the context of disposing of assets during a renovation. But investors should be aware that the same applies for involuntary disposal.”
He said that as scrapping provides an instant deduction for a fully or partly destroyed property, it can “lead to a big tax refund”.
However, he added that insurance coverage will change the payouts received.
“Insurance payouts can change the future depreciation claims of a property. Proceeds from an insurance payout could be treated as income or a deductible loss depending on the size of the payout and the cost to rectify the property,” he said.
“A number of factors such as rollover relief can also apply. We always recommend an investor speak to their accountant in these situations.”