Part-Year Australian Tax Resident - How Do Property Deductions Work?

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  spal on 27/06/2016 - 05:34

  +1

  If you lodge using my tax all you need to do is plugin your figures and it would calculate your tax. You can also try using ato comprehensive tax calculator.
  Your period of residence will determine the tax free deduction amount. You will have to disclose your rental income for the full year, and can claim all expenses as deductions used to generate your rental income. Any expenses over income will be offset against your income from other sources in Australia, including salaries. You will also have to disclose your overseas income, and pay tax on it, unless you have paid tax in the current country of residence and Australia has a double taxation avoidance treaty with that country.
  Things will be different next year if your investment expenses are greater than the income you won't have to pay tax, but wouldn't be able to offset investment losses against another source of Australian taxable income, if you don't have any Australian income. I'm not sure, but you may be able to accumulate your investment losses until you come back. Speak to an accountant or ato.

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    ninjawarrior on 27/06/2016 - 06:41

    Thanks spal - appreciate the response!

    Your link to the comprehensive tax calculator is very useful. The calculator doesn't have any option to include when expenses were incurred. My question is - do I include in my "net rental property loss" any rental income or deductible expenses incurred after I left the country?

    As I moved overseas permanently, I gave up my status as an Australian tax resident as of the day I left the country in March 2016 - I have followed the tax tool on the ATO website to reach this conclusion. As far as I can tell, that means that I do not need to pay Australian tax on any foreign source income I earned after that date.

    • 

      spal on 27/06/2016 - 07:56

      +1

      No worries mate.

      Even after you leave the country, you will have to lodge your tax return in Australia. In your Australian tax return you will have to report all your Australian income (which will include your rental income, interest or dividend income). You will also include all expenses incurred to generate Australian income as your deductions (may include mortgage interest payments, depreciation, council and water rates, etc). To that extent nothing will change. You not being a resident in Australia will only change the amount of threshold deduction you get and possibly some of the tax offsets.

      Although, depending your future country of residence laws you may also have to declare your Australian income in the tax return of the country. Although Australia has double taxation avoidance treaties with most major world economies.

      My suggestion would be if you are confident about handling your affairs, contact ATO and ask them the questions (it is a free service). However, if you are not tax savvy I would suggest speak to an accountant (if you do so before 30 June the advisory expense could be tax deductible in 2015-16 year itself). If I am correct most accountants would allow around 30 minutes of free consultation, which you can use to workout if the accountant knows the subject you are after and the fees are reasonable. In my experience high fees doesn't mean high quality advise, but also avoid al-cheapo advice too.

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        mxp on 27/06/2016 - 09:17

        Hi,
        I don't mean to hijack the original poster's questions, but do you know; given the exact same situation, how the ATO deals with this when someone sells the property? Are there capital gains?

        E.g.
        Say, you've been out of Australia for 5 - 10 years.
        Given the dual-tax treaty that Australia has in place with say, a specific country; you have not filed an ATO tax return since…
        Then, you decide to sell your property.

        Does the ATO collect any taxes from this property sale?
        NOTE: you have not filed a tax return in the last 5 - 10 years…

        Thanks for your insights…

      • 

        RockyRaccoon on 27/06/2016 - 09:49

        @mxp: You need to be aware of this.

        https://www.ato.gov.au/general/capital-gains-tax/in-detail/c….

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  RockyRaccoon on 27/06/2016 - 08:32

  You are dealing witha complex situation that frankly as spal says you need GOOD professional advice. Look for someone who has experience with this and also ideally has links to your new country of residence.

  The ATO has a tax paper on this and its by no means simple. It depends on where you are going, and also what the ATO determines your status to be. So you do need to layout honestly to them what your real intentions are. The issue you face is doing that requires careful wording if you are trying to minimise the impact on you.

  What you believe is fair isn't the issue. Its what they rule. (which you can appeal)

  You maintain links to Australia by keeping the investment property and wanting to claim deductions. Also your intentions are not really clear at this time. Saying you "intend" to stay away from Australia for 5 years doesnt necessarily mean you will. So actions like buying a house to live in in your new country make this clearer, where as renting or moving between varous oversees countries while maintaining your investment property here will make this more murky.

  Plus dual taxation agreemnts also come into play. Sometimes the Overseas country will ping you more than Australia. And then property may create more tax issues, plus you will have to have a higher level of accountancy support which will cost.

  And you might find the ATO will accept 5 years only after the first 2 years have elapsed.

  I personally experienced all this with help from one of the big accountancy companies, which fortunately my OS employer provided as a benefit. Unfortunately apart from the legal restrictions on financial advice etc, this is somewhat changed so even giving you examples of my situation would be rather pointless, plus I have no idea of the depth of intention you have or other financial circumstances.

  In summation, research and seek good professional help. Bargainers advice from some of those here might be costly. Read other threads and you will see advice from people who confuse what they think it should be and what it actually is. (like Road rules and warranty issues) Big mistake.

  Good luck

  ATO Link on the subject.

  http://law.ato.gov.au/atolaw/view.htm?dbwidetocone=07%3AATO%20Rulings%20and%20Determinations%20(Including%20GST%20Bulletins)%3ABy%20Type%3ARulings%3ATaxation%3AOld%20Series%3A2600-2700%3A%23026000002650%23IT%202650%20-%20Income%20tax%26c%20residency%20-%20permanent%20place%20of%20abode%20outside%20Australia%3B

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    RockyRaccoon on 27/06/2016 - 09:50

    A simpler link to the PDF

    http://law.ato.gov.au/pdf/pbr/it2650.pdf

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  CheapskateQueen on 29/06/2016 - 08:53

  If you you're Australian born (with Australian domicile) it's pretty hard to lose Australian residency for tax purposes.so your specific circumstances of where you're going to be living/lifestyle are very relevant for determining residency. Since you have a property here, family and intend on returning frequently, i suggest you get more comprehensive advice

  The ATO residency calculator is poor and shouldnt be relied upon. It offers no protection if it's wrong.