All Topics / Legal & Accounting / tax on rental property income when living overseas

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  • Profile photo of jpn251177jpn251177
    Member
    @jpn251177
    Join Date: 2008
    Post Count: 2

    My partner and I are moving back to London soon. We have owned and living in our Sydney unit for 1yr and have 21 yrs of a 30yr mortgage to pay off (p + I loan).
    We want to keep it as we convinced it will only go up in value over the years.

    My question is what are the tax implications of renting out our property whilst living in London? E.g – Do we pay tax on the $600 rental income p/w and if so, can we still claim deductions back on this taxable income (even though we'll be outside Oz and or only Aussie income will be the rent) and/or also carry forward any additional deductions whilst outside of Oz for when we move back in x amount of yrs (maybe 5-15yrs)?

    Appreciate your help as I can't find ANY info on this subject either on the web or the ATO site! We will have around $600 excess to pay each wk to cover mortgage and other costs….

    Cheers.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    You would probably have to report in rental income and expenses on your tax return both here and probably over there too. If there is a loss here, it should be able to be carried forward to future years so you can offset future income.

    its a complex area.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of jpn251177jpn251177
    Member
    @jpn251177
    Join Date: 2008
    Post Count: 2

    thanks however don’t understand why its so complex and that the ATO have zero info on their website about it…. Over 1M Aussie’s live overseas and at least 10% of those, you would think, must have property back in Oz!
    ……..

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    There is plenty on the ATO site. Maybe you can try searching for 'double tax agreements', 'non residents' etc

    eg.
    http://ato.gov.au/large/content.asp?doc=/Content/60937.htm

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of PALOHHPALOHH
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    @palohh
    Join Date: 2008
    Post Count: 7

    Hi JPN_______,
    I too am finding myself in the same boat. HAve you found anything out yet if so could you point me in the right direction besides doings hours of research on the the ATO website.

    Cheers PALOHH

    Profile photo of erikkoerikko
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    @erikko
    Join Date: 2008
    Post Count: 12
    Terryw wrote:
    There is plenty on the ATO site. Maybe you can try searching for 'double tax agreements', 'non residents' etc

    eg.
    http://ato.gov.au/large/content.asp?doc=/Content/60937.htm

    i just read your resource and i want to know more. can you give me other resources other than this one?

    Profile photo of elkamelkam
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    @elkam
    Join Date: 2006
    Post Count: 722

    Hello jpn251177

    As Terry said, this is a complex area because it is not only dependent on Australian tax law but also on the tax law of the country you will be living in and whether the two countries have a double tax agreement. Being England I would be very surprised if there wasn't such an agreement.

    However, Terrys' answer as to what your obligations in Australia are is correct.
    You will need to submit an Australian tax return each year reporting your rental income and expenses. The loss you will be making can be carried forward to be offset against future profits but I am not sure for how long. Your accountant should be able to answer this or simply ring the ATO and ask.

    I'm an expat living in Europe but my properties make a small net profit. I am currently negating this by contributing to a super scheme. Something for you to consider when your property turns CF+

    I have to report this rental income on my tax return here but don't need to pay tax on it because Belgium has a double tax agreement with Australia. The only thing they take their cut of is interest and share dividends. The latter is very painful for fully franked dividends.

    If you're into shares it may be of interest to you to know that you don't need to pay CGT in Australia on CGs on shares. Whether England will tax you on this is something to check in England.

    I assume you know that you can rent out your PPOR for up to 6 years without damaging it's CGT free status but if you intend to stay in England for longer than don't forget to have the unit valued just before the 6 years expire.

    I hope this is of some help.

    Elka

     

    Profile photo of eddieceddiec
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    @eddiec
    Join Date: 2004
    Post Count: 113

    Based on the limited facts, my understanding of the law is:

    1. If you become non-residents, you will still be subject to Australian tax on your Australian sourced income, ie, income from the Sydney property.

    2. However, if the property is being negatively geared, the loss created will sit there indefinitely to offset other future Australian sourced income of yours.

    3. Query if you are becoming non-residents, especially if you have an intention to come back to Australia. Google "TR 98/17" to see the Commissioner of Taxation's view on the subject. This is rather important as Australian tax residents are taxed on their worldwide income (not just Australian sourced income).

    4. You will become residents of the UK, which presumably taxes your worldwide income, including the income from the Sydney property.

    5. Again, as the property is negatively geared, you will need to find out if the UK would allow you to use the net loss to offset your UK income (more likely not based on common sense because Australia will let you carry forward the net loss indefinitely and if the UK allows you to use the loss as well, it seems to me that you could potentially double dip).

    6. If the property is not negatively geared (ie, taxable), the double tax agreement between Australia and UK should provide double tax relief.  This usually takes the form of you having to include the rental income in both your Australian and UK tax returns but the respective jurisdictions will provide a foreign tax credit on the tax already paid on the same income in the other jurisdiction.

    7. There will be CGT when you sell in Australia but you will be eligible for the 50% CGT discount.

    8. As alluded by someone else  before, there may be an apportionment of the CGT, given that the property has been used as your main residence at some point. There is also an alternative way to assess the CGT if you turn a property that has always been your main residence to an income producing asset, ie, you may be treated as if you acquired the property at its market value when it becomes a rental property without the need to apportion.

    Like the others have said, this is a complex area and professional advice should be sought.  While my summary seems straightforward, the specific facts of your circumstance may come into play, which may give you a different set of outcomes.

    Eddie
    [email protected]

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