Rental Income Paid in Advance - Included in Current Financial Year?

Crosscade on 25/07/2019 - 14:10
Last edited 26/07/2019 - 14:14

Around a year ago I moved out my purchased house to live permanently with my now wife. I started renting it out and this will be my first financial year where I have to include rental income in my tax return.

My question is, I had a tenant break lease and move out just before the end of June, and a new tenant move in to replace them. The new tenants first payment includes time into the 2019-2020 financial year, but was paid into my account during the 2018-2019 financial year (before June 30).

As the paid rental period spans both financial years, I am confused as to whether it should be fully included in the 2018-19 return as it was paid to me during that period, or apportioned into both years as the rental period covers both years.

Edit:
Thanks for the feedback guys.

Can you confirm if this is correct: Using the same logic, expenses that would otherwise span over the financial year should be fully included in the year they are paid?

e.g. Even if i paid insurance for the house at or near the end of the financial year and if covers a 12 month period, the expensive should be fully deducted from my 2018-19 period?

Financial

Comments

  • trustnoone on 25/07/2019 - 14:19
    +1

    Okay, so I'm unsure if this is related, but its something I was told about recently, apparently there's two types of accounting, cash based and accruals.

    https://www.ato.gov.au/Business/Income-and-deductions-for-bu…

    If you go by cash based I think its the moment you receive the cash you can say it is yours, so say you receive it this financial year, then I guess it would go for this one. But if you go off accrual you can only count the money for work or services actually done. I'm unsure if this means split it though, or if you go in afterwards. Hopefully someone knows way more then me lol

  • Seraphin7 on 25/07/2019 - 14:20
    +4

    As ever, speak with your accountant, but the default position the ATO takes (and expects) is that individuals prepare their returns on a cash basis. That is, the income is taxable in the year it is received, regardless of the period it applies to.

    It may be possible for an individual to move their affairs to an accrual basis (and without going into the depths of accrual vs cash accounting) meaning that the income would be apportioned across the years in your example. Whether or not that is possible in your case is a matter for your accountant.

    • brad1-8tsi on 25/07/2019 - 14:58

      Interesting, as I was paid a dividend / distribution from a Vanguard ETF (VESG) on the 16/07/19 which i would normally include in the 19/20 tax year but they supplied a tax statement for the year ended 30/06/19 which implies I should be reporting the income in the 18/19 year.

      It's only $108

      • Telcius on 25/07/2019 - 15:08

        Trust's are a bit of an outlier; the default position is cash basis for pretty much everything related to individuals.

  • lubos on 25/07/2019 - 14:40
    +6

    There is ATO ruling on this exact situation:

    https://www.ato.gov.au/law/view/view.htm?docid=EV/1051321382…

    Amounts representing rent in advance that are non-refundable are assessable in full in the year of receipt.

  • holdenmg on 25/07/2019 - 14:42
    +1

    I'll have the money.

    I mean, if nobody else wants it. lol

  • ihbh on 25/07/2019 - 14:49

    If you paid the plumber on 30 June but he could only start work on 1 July, what year would you claim the expense?

    • HighAndDry on 25/07/2019 - 14:55

      If you were a business, you'd count it in the next financial year….. technically. To minimise your taxes, you'd count it in the current.

      • ihbh on 25/07/2019 - 14:59
        +1

        The ATO allows small businesses to account for income tax on a cash basis, so technicality (accrual accounting) doesn't apply in this case.

        • HighAndDry on 25/07/2019 - 15:00

          Ah. This is why I'm not an accountant.

          • ihbh on 25/07/2019 - 15:24

            @HighAndDry: Me neither. But I've just skimmed the last 2/3 of a tax book in three nights after the kids went to bed (it took months for the first third and I had to return it to the library - big motivator) and will read the latest edition again shortly to reinforce some relevant points get across changes and start planning for the future. :)

    • Soluble on 25/07/2019 - 15:01

      Who pays the plumber before he's started work?

      • Seraphin7 on 25/07/2019 - 15:18
        +1

        People that want to claim a tax deduction.

        • Soluble on 25/07/2019 - 15:39

          If you're hitting up a plumber to pay for work before he's done it so you can claim it as a deduction this year rather than next I think I'd look at my financial situation a little deeper!

          • HighAndDry on 25/07/2019 - 16:00

            @Soluble: Lots of people and businesses do this - that's why there are so many EOFY sales: Basically, spend money now so you can claim it on your taxes this year.

            • Soluble on 25/07/2019 - 16:23

              @HighAndDry: We seem to be running into each other a lot. Lol I understand in the case of a business and goods, but paying for a service before it's done seems crazy.

              • HighAndDry on 25/07/2019 - 17:21

                @Soluble: Oh hey. Yeah no I agree with you there, terrible idea generally speaking.

          • ihbh on 26/07/2019 - 10:10

            @Soluble: Say it's a $1k job (scale it to what you think is reasonable). $1k @2% for 1 year = $20, but @4% in your mortgage offset account is $40. Easy $40 (because you will have to pay anyway) vs all the crap people do here for $2!

            • Soluble on 26/07/2019 - 11:06

              @ihbh: I assume you are talking about your owner occupied property for the offset, not investment offset, I get it, but you don't get $1000, you get it back at your tax rate, so it's not $1000. I'd rather go the other way and hold that $1000 As long as I can.

              • ihbh on 26/07/2019 - 11:43

                @Soluble: Sorry, too quick reply. Yes, $1k x marginal tax rate x interest.

                I'd rather go the other way and hold that $1000 As long as I can.

                That's sensible too. Too many people trying to chase tax benefits, which is max around 50% x outlay. Only if outlay absolutely necessary - cost of earning accessible income. Try to minimise costs as much as possible.

  • Soluble on 25/07/2019 - 15:00

    It's when you recieved the money. It'll balance out on the following years return anyway.

  • Realsteel on 25/07/2019 - 15:19

    I take it you are doing your tax as an individual, so it's done on a cash basis. If you received it before 30 June, it goes in as income for FY19.

  • Crosscade on 26/07/2019 - 14:14

    Thanks for the feedback guys.

    Can you confirm if this is correct: Using the same logic, expenses that would otherwise span over the financial year should be fully included in the year they are paid?

    e.g. Even if i paid insurance for the house at or near the end of the financial year and if covers a 12 month period, the expensive should be fully deducted from my 2018-19 period?

    • Baysew on 26/07/2019 - 14:18

      Correct.

      Once you have got this one done, next years will be much easier.

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