Wading through the aftermath
The Age
Saturday February 26, 2011
Flood-affected landlords and tenants face a tangle of issues. VICTORIAN investors with properties in recently flooded or flood-prone areas have been given plenty to think about this summer. Devastating floods in rural Victoria, New South Wales and Queensland and flash flooding closer to home have left thousands of owner-occupiers and investors with a tangle of issues to sort through.For tenants whose homes have been inundated, the search is on for another rental property. For investors, the immediate and long-term questions keep piling up: how best can they meet mortgage repayments on properties that may take months to fix? What are the insurance and tax implications of repairing, re-constructing or selling their properties? What is the long-term prognosis for housing markets in areas prone to natural disasters?The chairwoman of the REIV's property management arm, Leah Calnan, says property managers aren't trained in disaster and crisis management and many are struggling to cope with the complex practicalities and emotional fall-out of recent events."You're dealing with tenants and residents who a lot of the time are overwhelmed with the situation and don't know what to do," she says."Insurance is great from a recouping point of view but in the meantime, when the deposit has to be paid for $3000 worth of carpet, they have to have the funds to be able to do that."Even relatively minor flooding can do major damage.Ms Calnan advises investors caught without building or landlord insurance to shop around carefully for the future. "There are some very good ... and some very, very average policies around," she says.Anyone contemplating repairs or reconstruction should discuss with their tax accountant what is tax deductible and when they will recoup their money, says Tracey Collins, an online tax adviser with Personal Tax Specialists."Lots of people aren't really aware of the distinctions or finer points in relation to what they can claim for their rental properties," she says. "People will go ahead and repair their properties and it could quite possibly cost them a lot of money if they don't get advice before ... because if they do repairs that the Tax Office will class as an improvement, that won't be tax deductible," she says.While the full cost of repairs can be claimed in the year they're paid for, changes classed as improvements or renovations cannot."It may be that you can claim some over five years but quite often, it will actually be over 40 years," Ms Collins says. For anyone expecting an insurance payout, it's also crucial to find out whether or not they'll need to pay tax on it."That will depend on each individual circumstance," Ms Collins says. There's also relief on offer from mortgage repayments and rates for investors whose properties won't generate any rental income for some time owing to the floods and tax breaks for those who know how to access them."There is a way for them to reduce income tax payments out of their wages so ... if it's going to be a period of six months before they'll start earning rent again, we might be able to organise for them to pay less tax just to help their cash flow a little bit," she says.Did you know?€“Insurance payouts for damage caused to your property or for loss of rental income are taxable income.€“Demolition and clean-up costs are tax deductible up to a point, after which they're classed as capital costs.€“Capital gains tax may be applicable to rental properties completely destroyed by flooding.€“For more tips on tax issues for property owners affected by floods, visit tiny.cc/6ccyb.
© 2011 The Age