Private ruling: CGT - lump sum insurance payment
Date of advice: 21 June 2024
Published: 5 August 2024
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the lump sum insurance payment you received for damages to your rental property, reduce the first element of the cost base for capital gains tax purposes? | A1: Yes. The lump sum amount you received relates to malicious damage to the rental property. The amount you received is a recoupment amount that reduces the cost base of the underlying asset.

Relevant facts and circumstances: You acquired a property (Property) for $XXX,XXX. The Property was acquired for investment purposes and located in a remote mining town. In preparing the Property for sale, it became necessary to evict the tenant due to damage and negligence they had caused to the Property. You discussed the following options with the Real Estate property manager, after the tenant vacated the Property: • Repair times and costs were restricting you returning the Property to a presentable state for sale in the 20XX year. • Retaining the Property to repair all damages would take more than X months and may not have recovered the value of works conducted. • Repairing all damages to the Property would leave you with a mortgage to service whilst the Property was not tenanted. • You were left with little options and determined to sell the Property at a discounted price. On XX XX 20XX, you lodged an insurance claim due to the significant damages to the property. On XX XX 20XX, a builder's inspection report was completed following advice received from the Real Estate due to the damages by the tenant to the property. The report concluded malicious damage was conducted throughout the property. On XX XX 20XX, the Property sold for $XX,XXX. On XX XX 20XX, you received the insurance claim for the malicious damages to the Property of $XX,XXX.XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 20-25 | Income Tax Assessment Act 1997 section 110-45 | Income Tax Assessment Act 1997 section 116-20(1) | Income Tax Assessment Act 1997 section 102-20