What are the Australian tax implications for your overseas investment property?

overseas investment property

With the Australian property market seemingly reaching new highs every week it is no wonder that more Australians acquire an overseas investment property.  In this article we explore the Australian tax implications if you have acquired an overseas investment property.

Foreign Country Tax Implications For Your Overseas Investment Property

The first thing you will want to understand when you own an overseas investment property is what taxes will apply to your property in the country it is located in.

Tax implications to investigate include :

  • taxes on the purchase of the property (eg. stamp duty)
  • land taxes, council taxes
  • tax payable on rental income
  • tax payable on capital gains
  • tax deductions you are entitled to claim against your rental income

It is important to note, that the local tax implications of investing in foreign property may be very different to how property is taxed in Australia.  As a result, it is recommended that you consult a local tax advisor who is familiar with the tax treatment of investment properties.

Australian Tax Implications For Your Overseas Investment Property

1. Non Resident For Australian Tax Purposes

If you are a non-resident for Australian tax purposes, then the Australian tax office is only going to be interested in your overseas investment property once you return to Australia or become an Australian resident for tax purposes again.  As such, whilst you remain a non-resident for Australian tax purposes you will be taxed in accordance with the relevant laws in the country where you have invested, or where you are a resident of tax purposes.

2. Rental Income

Australian residents for Australian taxation purposes, generally need to declare their global income from all sources.  As such, if you are a resident for Australian taxation purposes, then you will need to declare your rental income from the overseas investment property on your Australian tax return.  If you are earning an income from the foreign property, then you will also be able to claim tax deductions associated with the earning that rental income which we will discuss further later in this article.

One key exception to declaring income from an overseas investment property would be if a double taxation agreement between Australia and the foreign country were to grant exclusive taxing rights over the rental income to the country in which the property is located. In our article on Australian tax treaties, we list the countries Australia has negotiated a double taxation agreement with.

Even if there is a double taxation agreement between Australia and the foreign country, both countries may still maintain taxing rights over the property investment.

What this generally means is that you would firstly pay whatever tax is due in the foreign country in which the overseas investment property is located.  Then, in Australia, you will still need to declare your foreign rental income on your Australian tax return, but your tax liability may be reduced by any Foreign Income Tax Offsets you are entitled to (representing any foreign income tax you have already paid on that rental income).  You should discuss the tax implications with your taxation advisor as there are limits and restrictions in the application of foreign income tax offsets.

tax implications with overseas investment property

3. Tax Deductions

The Australian tax implications for overseas investment property is very similar to Australian property when it comes to claiming tax deductions.

Generally, any costs involved in generating your foreign rental income will be tax deductible in Australia.  Examples of expenses that might be tax deductible in Australia would include loan interest on the purchase of the property, property management fees, maintenance costs, council rates etc.

4. Depreciation on an overseas investment property

Similarly to tax deductions, you may be entitled to claim depreciation deductions on your overseas investment property.  There are some slight differences between depreciation entitlements between Australian investment properties and an overseas investment property, including the age of the property.

The easiest way to claim your full depreciation deductions is to obtain a quantity surveyor’s report (compliant with the ATO requirements).  Companies like Washington Brown can produce these reports which can then easily be given to your tax accountant in Australia.  Washington Brown is based in Australia, and understand the ATO requirements for an overseas investment property depreciation report.  We have negotiated a special offer with Washington Brown.  By completing this inquiry form, you will be entitled to a A$55 discount on the cost of obtaining a report.

tax implications of overseas investment property

5. Negative Gearing

Since around 2008 it has been possible to negatively gear an overseas investment property for Australian tax residents.  If you acquired your overseas investment property in 2008 or before you should discuss the tax implications with your Australian tax advisor.

6. Capital Gains

Like other investments, your overseas investment property will generally be subject to capital gains tax in Australia.

However, similarly to the taxation of rental income, it will also depend on whether there is any double taxation agreement between the two countries and what that agreement says.  If the country where the overseas investment property was located taxes the capital gain, and Australia is permitted to tax the capital gain (pursuant to the Double Taxation Agreement) you may be able to avoid being taxed twice through the use of foreign income tax offsets.  That is you will receive a credit for any foreign tax already paid on the capital gain.

Just like with Australian investment property, should you hold the overseas investment property for more than 12 months, then the 50% capital gains tax discount may apply (individual owners only).

What is your experience with an overseas investment property?  Would you do it again?  Share in the comments section below.

Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.  The Australian Expat Investor may receive referral commissions from companies referred in this article.

 

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Craig

Craig is an Australian Expat and the founder of The Australian Expat Investor.Craig is passionate about investing, and while Craig cannot give personal financial or tax advice, Craig enjoys sharing investing, tax, and other tips for Australian expats to help them to build their wealth while living abroad and get the most out of their time living overseas.Get his free ebook on 9 Financial Surprises That Could Cost Australian Expats Thousands of Dollars at the link above.
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