If your property is damaged or destroyed, you may receive an insurance payment. How this is treated for tax purposes depends on:
• the type of property – your home, other buildings, cars, personal property or work-related items
• whether or not the property is income-producing – for example, a rental property or business premises.
Repairs to income-producing property are generally tax deductible in the year you incur them. If the work goes beyond restoring the original form or function, the expense may not be deductible as a repair. Different rules apply where property is improved or completely replaced. Where the cost of repairs includes goods and services tax (GST), you may be entitled to input tax credits if you are registered for GST and incur the cost in carrying on your enterprise.
You can claim a deduction for the cost of repairs to a rental property or business premises if they do not involve substantial reconstruction or substantial repair, or the replacement of an entire structure such as a fence.
If you receive money from a relief fund, and use it to make repairs, this does not affect your entitlement to the deduction.
If you receive an insurance payout in respect of these repairs, the amount you receive should be included in your assessable income.