Hi. I bought an IP in Australia a few years ago and had it negatively geared. Since the start of 2008 I have moved to the UK for a holiday and intend to stay here for a couple of years. As I won't be earning any income during this period, is it possible for me to carry over my losses until such time that I come back to Australia and start working again?
The tax accountants in the UK say I can and that its done quite common….
My tax accountant in Oz says I can't……Which is it??
Yes, you can – and for an indefinite period as well.
Eddie
[email protected]Well thats good news then. Is there any references where it states that this is allowed?
Subdivision 36-A of the Income Tax Assessment Act 1997.
Ok still a bit confused.
Lets say I own an IP in Australia earning me rental income of $20,000 pa.
Lets say my Interest payment is $30,000 pa
Now lets say I earn GBP 15,000 during the Australian income tax year. During this year I am regarded as a UK resident for taxation purposes.What would be the scenario? Can I carry the full -$10,000 over to the next year? Or do they take my UK income into account? If they do take my UK income into account, does that mean I can claim back some of the tax paid in the UK?
My accountant seems to think that because I have earnt GBP 15,000, it is regarded as 'exempt income', which gets taken into account for negative gearing. Given GBP 15,000 is more than AUD $10,000, his thoughts is that I will not be able to carry over any rental losses into the next year.
The normal disclaimers apply:
1. In your original post, you said, " I won't be earning any income during this period".
2. I note that you are now saying you will be earning GBP15K pa.
3. The negative gearing loss is $10K.
4. Section 36-10 (ITAA 1997) deals with how a tax loss is calculated, ie, total deductions – total assessable income – net exempt income.
5. Section 36-20 (ITAA 1997) prescribes how net exempt income is calculated, which includes foreign employment income exempt from Australian tax under section 23AG (ITAA 1936).
6. You should check that section 23AG applies (especially in the first year and its interaction with the double tax agreement between Australia and the UK).
7. Assuming that section 23AG applies, the tax loss calculated for the year will be $30K – $20K – GBP15K (say $38K aussie dollars) = -$5K
8. Therefore, you will not have any tax loss in Australia because your foreign employment income that is exempt in Australia is deducted from your negative gearing loss.Hello eddiec
I tried to find the sections you mentioned on the ATO site but got totally lost.
Because of this I don't know if the situation changes for jc1979 if he is deemed to be a non resident for tax purposes.Does he still have to declare the income he earns in his country of residence (UK) to offset against his Australian losses?
Just out of interest.
Elkaif all else fails, email the ato – [email protected] this address gives you a response based on the information provided to the ATO.
elkam wrote:Hello eddiecI tried to find the sections you mentioned on the ATO site but got totally lost.
Because of this I don't know if the situation changes for jc1979 if he is deemed to be a non resident for tax purposes.Does he still have to declare the income he earns in his country of residence (UK) to offset against his Australian losses?
Just out of interest.
ElkaLOL. Yep, the 1936 Act is ridiculously convoluted. The situation would indeed have been different if jc1979 becomes a non-resident but there will be a few hurdles for him to get over to make himself one (he already talked about coming back, etc). If he becomes a non-resident, his UK employment income wouldn't be caught by the Australian tax net at all, so it wouldn't be exempt income under s23AG, which means that it wouldn't reduce the negative gearing loss.
ipfreely – good luck with asking the ATO. They would probably ask you to formally apply for a private ruling, which will take months and months to resolve. Either that or they would give you their interpreation of the law, depending on who you get on the other end, which may or may not be legally correct.
I wondered whether the situation had changed in the OZ tax world.
Many years ago I accepted a 2 year contract to work overseas and while I thought I would come back after that time more contracts followed , life happened and I haven't been an Oz resident since. When I left Australia I organised my affairs so that I would be a non resident for the ATO for pretty much the same reasons as jc1979 probably should. Being away for at least 2 years make that easier I thought.
I think there is no law against finding out that you'd rather live in Australia after all and coming back.
Thank you for the answer eddiec.
Elka
elkam wrote:I wondered whether the situation had changed in the OZ tax world.
Many years ago I accepted a 2 year contract to work overseas and while I thought I would come back after that time more contracts followed , life happened and I haven't been an Oz resident since. When I left Australia I organised my affairs so that I would be a non resident for the ATO for pretty much the same reasons as jc1979 probably should. Being away for at least 2 years make that easier I thought.
I think there is no law against finding out that you'd rather live in Australia after all and coming back.
Thank you for the answer eddiec.
Elka
Agreed, Elka. Residency is a question of fact. 2 years away is the general rule of thumb but it is not law. For those who can't sleep at night and want something to make them sleepy, check out taxation ruling TR 98/17, which deals with the tax office's views on residency.
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