All Topics / Overseas Deals / Overseas property depreciation rules

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  • Profile photo of AdroproAdropro
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    Can someone please confirm that depreciation and capital works deductions are subject to the same effective lives and rules as Australian property?  I'm sure they are.

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    @zmagen
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    You're referring to US properties, I assume? There are a few countries represented in "overseas deals", that's all ;) I do Japan, I've noticed the uk, Romania, Bulgaria, Germany, Indonesia, new Zealand Singapore, china, hong-kong, India and Thailand also come up here, to name only a few…maybe be a bit more specific if you want more accurate answers…?

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of TerrywTerryw
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    I don't think there are any differences in claiming depreciation on overseas property compared to Australian property. Don't think the location or which country the property is in would matter either.

    But I have never looked into this.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    @zmagen
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    Also not sure…I think there are differences in claiming purchase expenses, for instance, so depreciation may also vary, but never looked into Australia in that regard, so have no frame of reference.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    @zmagen
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    A quick online check seems to suggest that different provinces in Canada, as well as in Georgia, USA, for example, have slightly different rules and regulations regarding depreciation. My depreciation agent here in Australia, also, mentioned that capital gain laws seem to play a part as well (pre mid-1980s, for instance, cannot claim building depreciation, only internal fittings)…so I'm guessing (just guessing) there are at least some slight differences…it'd be interesting to find out more.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of livewildcardlivewildcard
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    Think its dependent on where the moneys being claimed is it offshore or is everything coming back to Aus etc. I think that makes a difference

    Profile photo of AdroproAdropro
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    @adropro
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    To clarify, I meant: if an Australian tax resident (not temporary tax resident) has income from a foreign rental property, must they always use Australian capital works and capital allowance (AKA depreciation) rules to make claims in their Australian income tax return?

    Whether the 'money' is kept offshore is irrelevant to an Australian tax resident (not a temporary tax resident) who derives foreign rental income.  If you're a temporary tax resident you don't need to declare any foreign rental income, and it follows that you can't use any losses.

    The tax rules are messy when considering local tax rules.  Layered upon local tax rules are the tax treaties. Most tax agents don't have a clue.

    Getting back to my question, the answer is yes, they must use Australian depreciation rules.  I just wanted to see if anyone could come up with a different answer.  I thought there may be some obscure tax ruling on the issue.  I have since discussed this with the ATO and the tax rulings, public and private, all say the same thing.  It makes sense of course.

    For an Australian tax resident (not a temporary tax resident) the location of the property is irrelevant for claims made in an Australian income tax return because Australia seeks to tax the income under Australian tax rules therefore they must apply.

    Once you've come to grips with the Australian tax rules, then you need to consider the tax rules where the property is located, determine if a tax treaty applies and act according to which rules apply.  If all the rules interact and apply in some way then good luck.

    I have seen a few tax returns prepared by others where depreciation deductions have been taken straight from a foreign tax return, converted to AUD and claimed in their Australian tax return.  This is usually done to save time and avoid negotiating a higher fee for preparing the tax return, or they simply don't know the rules.  However, the rules clearly state you must calculate all deductions claimed in your Australian tax return using Australian tax rules, including those for depreciation.  For example, if the overseas property was built before 1985 and no capital improvements have been done since 1992, no capital works deductions would be allowed at all.  Another example: you own a NZ property where there is no CGT, but CGT rules will seek to tax any gain on sale if you are an Australian tax resident (but not a temporary Australian tax resident).

    If you are lodging tax returns yourself or through a tax agent, perhaps you should review how any depreciation claims have been determined so you don't receive a nasty surprise from the ATO.

    The other interesting thing is you still need a suitably qualified person to prepare a depreciation schedule for an overseas property e.g. a quantity surveyor.  And you can use an Australian quantity surveyor…if you know the construction, improvement and/or asset costs…because you certainly couldn't afford to pay them to visit an overseas property to estimate such costs. You might need a foreign quantity surveyor or equivalent to estimate costs and dates incurred, then an Australian quantity surveyor or accountant to apply the depreciation rules to the costings.  Either way, it certainly complicates ownership of foreign investment properties if you want to maximise your Australian tax benefits.

    Enjoy!

    Profile photo of Texas Cash Cow Investments AustraliaTexas Cash Cow Investments Australia
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    Adropro

    I have had this discussion with BMT. They will prepare a Depreciation Schedule for US property. They just need as much information about the improvements to the property as possible and dates etc. Cost I recall was in the vicinity of $500

    Profile photo of washingtonbrownwashingtonbrown
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    We have people in certain parts of the world.

    I wrote this article on the topic some while back:

    http://www.washingtonbrown.com.au/quantity-surveyor-corner/overseas-property-purchases

    I hope it helps

    Regards

    Tyron Hyde

    http://www.washingtonbrown.com.au

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    @zmagen
    Join Date: 2012
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    Great info, thanks! 

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
    http://www.nippontradings.com
    Email Me | Phone Me

    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

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