• 9 Rent

    Former STS taxpayers still using the STS accounting method

    If the partnership is eligible and has chosen to continue using the STS accounting method, base the gross rent at F, interest deductions at G, and general deductions and repairs included at H on the STS accounting method. For more information, see continued use of the STS accounting method.

    Small business entities

    Depreciating assets used in rental properties are generally excluded from the small business entity depreciation rules on the basis the assets are part of property that is subject to a depreciating asset lease. For more information, see the Small business entity concessions.

    If the sole reason you derived income jointly (or in common) with another person was you were a part owner of a property available for rent, but you were not in a partnership carrying on a business of renting out properties, do not show any income or deductions from that rental property at this item. Show your share of the income or deductions at item 21 Rent of your Tax return for individuals (supplementary section) 2016 or the relevant items of the company, trust or fund tax return or the self-managed superannuation fund annual return.

    To determine whether you are carrying on a business, see TR 97/11 Income tax: am I carrying on a business of primary production?

    Income tests require each partner to report their share of the partnership rental property income or loss. If the rental income is merely investment income and not partnership business income, this should be reported in your individual income tax return at item 21 for rental income or losses. If your rental income is true partnership business income, you are required to complete item 9, and show your net rental property income or loss at H item 50 and your share of net rental property income or loss at K item 51. For more information see item 50 Income tests.

    Gross rent

    Show at F the gross amount of rental income. This item cannot be a loss.

    Rental income includes booking or letting fees, bond monies if the partnership becomes entitled to retain them, any insurance payouts that compensate for lost or forgone rent, and reimbursements from tenants of deductible expenses incurred.

    If the partnership is registered for GST, and GST is payable for rental income, exclude the GST from gross rent at F.

    Show rent from foreign sources at item 23 Other assessable foreign source income.

    Lease premium received from a CGT event

    A capital gain or a capital loss made from the receipt of a lease premium is shown on each partner’s own tax return.

    For more information about CGT events involving leases, see the Guide to capital gains tax 2016.

    Interest deductions

    If borrowed monies are used to finance a property investment, interest paid on the borrowing generally is deductible.

    However, the thin capitalisation rules may apply to reduce interest deductions. These rules place a limit on the amount of interest and other borrowing costs that can be deducted for Australian tax purposes, for more information see Appendix 3. The disallowed amount reduces the amount that would otherwise be included at G.

    If the TOFA rules apply to the partnership, include all interest expenses incurred on monies borrowed to finance a property from financial arrangements subject to the TOFA rules at G.

    Show at G the total deductible amount of interest expense incurred in earning the rental income.

    Capital works deductions

    Show at X the total capital works deductions amount for rental buildings and structural improvements, such as fences, retaining walls and sealed drive ways. For information on capital works deductions, see Appendix 5. You can also work out your capital works deductions by using the Depreciation and Capital Allowances Tool (DCAT) at ato.gov.au

    Other rental deductions

    Show at H the total of other deductible expenses incurred in earning rental income.

    If the partnership is registered for GST, and GST is payable for rental income, exclude any input tax credit entitlements that arise for expenses from the amount shown at H.

    Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable deductions under the thin capitalisation rules, for more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise be shown at H.

    Deductions for the decline in value of depreciating assets used to earn rental income are generally shown at H. However, if the partnership has allocated some of these assets to a low-value pool, you may need to show deductions at 18 Other deductions, for more information, see Appendix 6.

    Net rent

    Show at this entry the net amount of any rent. If this amount is a loss, print L in the box at the right of the amount. For more information, see Rental properties 2015–16 (NAT 1729).

    Tax agents who lodge partnership tax returns electronically must complete the Rental property schedule 2016 if item 9 Rent is completed. You do not have to complete the schedule if you are lodging a paper version of the partnership tax return.

    10 Forestry managed investment scheme income

    Definitions

    A partnership is an initial participant in a forestry managed investment scheme (FMIS) if:

    • it obtained its forestry interest in the FMIS from the forestry manager of the scheme, and
    • its payment to obtain the forestry interest in an FMIS results in the establishment of trees.

    A partnership is a subsequent participant if it obtains an interest in a forestry managed investment scheme through secondary market trading. This means it acquired its interest other than as an initial participant, usually by purchasing that interest from an initial participant in the scheme.

    The forestry manager of an FMIS is the entity that manages, arranges or promotes the FMIS.

    A forestry interest in an FMIS is a right to benefits produced by the FMIS, whether the right is actual, prospective or contingent, and whether it is enforceable or not.

    The amount of the partnership’s total forestry scheme deductions is the total of all the amounts it can deduct or has deducted for each income year it held its forestry interest, see item 17 Forestry managed investment scheme deduction for more information on amounts you can deduct.

    The amount of the partnership’s incidental forestry scheme receipts is the total of all the amounts it has received from the FMIS in each income year it held its forestry interest, other than amounts received because of a capital gains tax (CGT) event. Write at Q item 10 the total income from the following activities for each FMIS in which the partnership holds a forestry interest.

    For information on the CGT treatment of the partnership’s forestry interests, see the Guide to capital gains tax 2016. If the partnership is a member of a collapsed agribusiness managed investment scheme, for information on calculating your income and deductions, see Collapse of agribusiness managed investment schemes: participant information.

    For an initial participant in an FMIS

    Thinning receipts

    If the partnership received thinning proceeds from its forestry interest, include the actual amount received at Q.

    Sale and harvest receipts – forestry interest no longer held

    If the following applies, include the market value of the forestry interest at the time of the CGT event at Q:

    • a CGT event happened and the partnership ceased holding its forestry interest (because it sold its interest or it received harvest proceeds), and
    • the partnership
      • has claimed a deduction, or
      • can claim a deduction, or
      • would be entitled to deduct such amounts, but for a CGT event happening within 4 years after the end of the income year in which the partnership first pays an amount under the FMIS.
       

    Sale and harvest receipts – forestry interest still held

    If the following applies, include the amount by which the market value of the forestry interest was reduced at Q:

    • a CGT event happened and the partnership still held its forestry interest (because it sold part of its interest or there was a partial harvest) and
    • the partnership
      • has claimed a deduction, or
      • can claim a deduction, or
      • would be entitled to deduct such amounts, but for a CGT event happening within 4 years after the end of the income year in which it the partnership first pays an amount under the FMIS.
       

    For a subsequent participant in an FMIS

    Thinning receipts

    If the partnership received thinning proceeds from its forestry interest, include the actual amount received at Q.

    Sale and harvest receipts – forestry interest no longer held

    If the following applies, include the amount worked out below in the total amount at Q:

    • a CGT event happened and the partnership ceased holding its forestry interest as a result of a CGT event (because it sold its interest or it received harvest proceeds) and
    • the partnership has deducted, or can deduct or could have deducted an amount, if it paid the amount under the FMIS.

    Work out in relation to the forestry interest the lesser of the following two amounts:

    • the market value of the forestry interest at the time of the CGT event, or
    • the amount (if any) by which the total forestry scheme deductions exceeded the incidental forestry scheme receipts.

    Sale and harvest receipts – forestry interest still held

    If the following applies, include the amount worked out below in the total amount at Q:

    • a CGT event happened and the partnership still held its forestry interest (because it sold part of its interest or there was a partial harvest), and
    • the partnership has deducted, can deduct or could have deducted an amount it had paid the amount under the FMIS.

    Work out the lesser of the following two amounts, in relation to the forestry interest:

    • the market value of the forestry interest at the time of the CGT event, and
    • the amount (if any) by which the total forestry scheme deductions exceeded the incidental forestry scheme receipts.

    Use the lesser of the two amounts above in the following formula:

    the lesser of the two amounts above

    multiplied by

    the decrease (if any) in the market value of the forestry interest as a result of the CGT event
    divided by
    the market value of the forestry interest just before the CGT event

    Include at Q the amount calculated using the above formula. The remainder of the net deductions will be claimed in a future income year (a year in which the partnership receives further proceeds from a harvest or the sale of its forestry interest).

    To complete this item

    Add up all the amounts you worked out for the partnership’s FMIS income and write the total at Q.

    See examples 7 and 8 for how to calculate the amount you show at Q where the partnership is a subsequent participant that holds the forestry interest on capital account.

    For more information on the CGT treatment of a partnership’s forestry interest, see the Guide to capital gains tax 2016.

    Example 7: Sale receipts - forestry interest no longer held

    Cedar Partnership is a subsequent participant in an FMIS. It sold its forestry interest at the market value of $20,000. The sale of the forestry interest is a CGT event. The original cost base was $14,000.

    In the time that Cedar Partnership held the forestry interest, it claimed $4,000 in deductions (its total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that it paid to the forestry manager. In the same period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

    Cedar Partnership will need to include $2,500 (that is, $4,000 minus $1,500) at Q, because this amount is less than the market value of its forestry interest at the time of the CGT event.

    CGT Notes:

    • Cedar Partnership will take the amount that it included at Q into account when working out the partners' share of the capital gain relating to the CGT event.
    • The capital gain to be shared by the partners would be $3,500, which is capital proceeds of $20,000 less cost base of $16,500 (that is made up of $14,000 plus $2,500 that was included in assessable income).
    End of example

     

    Example 8: Harvest receipts - forestry interest still held

    Oakey Partnership is a subsequent participant in an FMIS. It received harvest proceeds over two income years. It received the first harvest payment of $5,000 in the 2015–16 income year.

    The market value of its forestry interest was $20,000 just before it received its payment for the first harvest (which is a CGT event). After it received this first harvest payment, the market value of its forestry interest was reduced to $15,000. Its original cost base was $14,000.

    In the time that it held its interest, Oakey Partnership claimed $4,000 in deductions (its total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that it paid to the forestry manager. In an earlier period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

    Step 1 The market value of the forestry interest (at the time of the CGT event) is $20,000.

    The amount by which the total forestry scheme deductions exceed the incidental forestry scheme receipts is $2,500 (that is, $4,000 minus $1,500).

    The amount to use in step 2 is $2,500.

    Step 2 Using the formula above:

    $2,500

    ×

    $5,000

    $20,000

    =

    $625

    Step 3 Oakey Partnership will need to include $625 at Q.

    CGT Notes:

    • Oakey Partnership has disposed of 25% of its forestry interest. The partnership will take the amount that it included at Q into account when working out the partners' share of the capital gain relating to the CGT event.
    • The capital gain to be shared by the partners would be $875, which is capital proceeds of $5,000 less apportioned original cost base of $4,125 (that is made up of $3,500 (25% of $14,000) plus $625 that is included in assessable income).
    End of example

    11 Gross interest

    Show at J the interest from banks and credit unions, building societies, debentures, notes and deposits, income accrued on discounted or deferred interest securities, government securities, and interest paid by us.

    The total, which is the gross amount of interest received or credited, must be included in assessable income.

    If the TOFA rules apply to the partnership, include all interest received or credited to it from financial arrangements subject to the TOFA rules at J.

    Show interest that is part of a cash management trust distribution or other similar trust investment product at item 8 Partnerships and trusts.

    Copy details from all statements to worksheet 3 and keep the worksheet with your tax records.

    Do not include non-share dividends received from holding a non-share equity interest. If the partnership holds such an interest, the issuer is obliged to forward a dividend statement with details of the dividends, which should be shown at item 12 Dividends. For more information on non-share dividends and non-share equity interests, see Debt and equity tests: overview.

    Discounted, deferred interest or capital-indexed securities

    Show at J the appropriate amount of discount, interest or other gain which accrued this income year on a discounted, deferred interest or capital-indexed security.

    Qualifying security rules

    A discounted, deferred interest or capital-indexed security may be subject to the qualifying security rules in Division 16E of the ITAA 1936.

    Those rules will only apply if the TOFA rules do not apply (see TOFA rules below). In addition, the security must be one that:

    • was issued after 16 December 1984
    • had a maturity date more than 12 months from the issue date, and
    • the sum of all payments under the security (except periodic interest, for example, a coupon rate) exceeds its issue price by greater than 1.5%.

    Example 9

    On 1 July, a zero-interest-discounted security is issued at $82.65, redeemable on 30 June after two years at a face value of $100. The investor holds the security until it matures. Where this security is not subject to the TOFA rules, the investor is required to calculate the effective rate of interest for each six-month period; in this case, it is 4.88%.

    The accrued amount included in gross interest is equal to the increase in value of the security in each income year, as follows:

    Table 5: Accrual amount

    Value of security at:

    Beginning of year

    Half-year

    Increase

    End of year

    Increase

    Increase for year

    (a)

    (b)

    (b)–(a)=(c)

    (d)

    (d)–(b)=(f)

    (c) + (f)

    Year 1 ($)

    82.65

    86.68

    4.03

    90.91

    4.23

    8.26

    Year 2 ($)

    90.91

    95.35

    4.44

    100.00

    4.65

    9.09

     

     

    End of example

    In the example, the six-monthly period falls at exactly half-year.

    TOFA rules

    A discounted, deferred interest or capital-indexed security that is a qualifying security may instead be subject to the TOFA rules.

    This will be the case if the partnership starts to have the security on or after the start of the partnership's first income year starting on or after 1 July 2010 (or 1 July 2009 if the partnership made an early start election under the TOFA rules), and:

    • the partnership is affected by the TOFA rules (below), or
    • the security is to end more than 12 months after the partnership starts to have it.

    If what you show at J includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

    Example 9A

    On 1 July 2014, a zero-interest-discounted security is issued at $82.65, redeemable on 30 June 2016 after two years at a face value of $100. The investor holds the security until it matures. As this security is subject to the TOFA rules and the TOFA accruals method applies to the security (investor has not made any tax-timing method elections under the TOFA rules) the investor is required to calculate the rate of return for each accrual interval. Using a 12-month period interval, the rate of return is 10.00%.

    The gain amount included in gross interest is equal to the increase in value of the security in each income year, as follows:

     

    Table 5A: Accrual amount

     

    Amortised cost (year start)

    Gain (increase in value of security)

    Cash Flows

    Amortised cost
    (year end)

     

    (a)

    (b)

    (c)

    (a) + (b) – (c)

    Year 0 ($)

     

     

    –82.65

    82.65

    Year 1 ($)

    82.65

    8.26

    0

    90.91

    Year 2 ($)

    90.91

    9.09

    100.00

    0

     

     

    End of example

    TFN amounts withheld from gross interest

    Show at I any TFN amounts withheld from gross interest where a TFN has not been provided to the investment body.

    Record keeping

    Keep all documents issued by the investment body that detail payments of income and any TFN amounts withheld from those payments.

    Do not attach these documents to the partnership tax return. Keep them with the partnership’s tax records.

    We may check the amount shown at J with our own records to determine accuracy, see Information matching.

    Last modified: 10 Aug 2016QC 48217