Insurance payout for damage to rental property – how to declare insurance payout as income and \ or capital gain event.
I have received an insurance cash settlement on a claim for damage to my rental property, and need to clarify if and how to claim the cash settlement on loss or destruction of assets.
During 2022-23, my rental property had damage from a neighbour’s fallen tree.
The insurance claim was for the tree removal and replacement of the destroyed rear boundary fence.
The insurance company settled the claim for both the quoted cleanup of the tree (~$3000, less excess) and quoted rear boundary replacement fence (50% of $7000 replacement costs), both as a cash payout in the same year.
I have assumed the payout for cleanup of the tree to be income, and the cost of tree removal to be deductible expense.
The fence replacement has not been done during FY2022-23, due to ongoing delays with neighbour’s 50% contributions to replacement costs, so the settlement has been retained as cash.
Is the cash payout of the replacement fence payout a capital gain tax event (Loss or destruction of a CGT asset)? And if so, does this count as a declarable capital gain in 2022-23 or does it come off the capital base of the entire property to be considered upon later disposal (Disposal of a CGT asset)?
CGT events | Australian Taxation Office (ato.gov.au)
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