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Is Business Interruption Insurance Taxable?

Oct 05, 2022
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Premium Funding Insurance Claim Business Insurance Business Interruption Insurance Commercial Property Insurance Commercial Property Owners Insurance

If your company is forced to cease operations as a result of unforeseen circumstances such as compulsory government closure or a natural disaster, your business may suffer financial losses. Business Interruption insurance, which works together with commercial property insurance, may help to reduce the impact of the financial loss that you experience. Business Interruption insurance can help to pay for ongoing expenses and compensates for revenue your business could have earned if your premises were not damaged. While Commercial Property Insurance covers your premises’ contents, including furniture and fixtures.

According to the Australian Taxation Office (ATO), operating expenses, which encompass insurance premiums that cover commercial property lost from theft or fire, are taxable. But if Business Interruption insurance covers costs such as lost profits, employee salary, and rent payments instead of assets, is it considered taxable? It makes up for the lost income you could have generated had your property not been damaged and helps pay for employee wages. Both company profit and employee salaries are taxable, which also is why Business Interruption insurance is taxable.

Tax Deduction Claims for Property Repairs and Improvements

Insurance payouts received for property repairs must be declared as income on business tax returns, the ATO states. However, companies can claim deductions for the cost of repairs required for their business. Tax deductions maybe valid as long as the repairs of business premises or rental properties do not involve an entire structure’s replacement or a substantial reconstruction or repair. Please consult your account to ensure you are operating inline with the ATO directions.

Some examples of business repairs include:

Replacing flood-damaged electrical wiring
Replacing a wall’s plasterboard after flood inundation
Replacing a section of a fence that was burned down
Replacing portions of cyclone-damaged windows or gutters

When undertaking repairs to your business premise, make sure you ask for an itemised invoice from the builder or contractor who will carry out repairs as this detailed documentation and evidence will be essential in claiming appropriate tax deductions.

Repairs refer to work that fixes property damage, deterioration, or defects. On the other hand, improvements do more than restore a property’s efficient functioning; they produce something new and modify the character of the item that was enhanced. Your company can claim tax deductions for both repairs and improvements as long as the costs for each are separate.

Taxes, tax deduction claims, and insurance premiums are complex matters that require the help of insurance brokers and certified accountants. For any questions or concerns on these matters, contact an insurance broker through Advisr today.

Management Liability Insurance

Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.

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Business Insurance

A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.

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Business Package

Purchase up to six products under one Business Insurance Package.

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General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.

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