Accounting for expenses

Question from Angela updated on 18th March 2020:

We have a family trust which has three rental properties and one family home. Rates and insurance can be deducted as an expense for the rentals (it receives taxable income) but not for the family home (receives no income). When sorting out the accounting/tax return, where should the rates/insurance costs for the family home be put under? It has been paid for out of the family trust bank account (as it belongs to the trust) but is not expense deductable. How do I account for this expense in the accounting return?

Our expert Mark Withers responded:

The costs can be recognised as expenses but the resulting profit must be adjusted separately to factor out the non tax deductible costs when filing the tax return. This accounting treatment ensures the costs are recognised and ultimately results in them reducing the trust capital balance by reducing trustee income.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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