ATO & non-rental/non-investment overseas property

[Enrike]

Hi to All,

I am Australia resident for tax purpose and have overseas citizenship.

In 2012-2013 year my wife and I bought overseas property as a holiday home. We are not having intent to rent that property.

On the tax return for 2012-2013 we answered that we have property which have total value more than $50,000.00 and we do not have rental foreign income.

On that property we are paying yearly tax, which is compulsory for everyone. In addition, every month we are paying about $150 for utility service fees and maintenance.

Are we entitled to tax deduction or not?

If we are not entitled on tax deduction, if in the future we decide to sell the property, can we deduct yearly tax and maintenance cost from eventual capital gain?

I have searched whole ATO site and did not find any information about properties which do not generate income.

Any advice will help for future tax returns.

Thanks in advance.

 

[Propertunity]

In 2012-2013 year my wife and I bought overseas property as a holiday home. We are not having intent to rent that property.

Are we entitled to tax deduction or not?

Id' say not. The basic premise of being able to claim expenses as a tax deduction is that you are earning assessable income from the property / or the venture. Since you do not intend to rent the property out, you would not be entitled to claim any expenses, related to the property, as a tax deduction.

This is true also for investors who under-rent their invesment properties to say a friend or relative. Because they are not charging market rent, they are not entitled to claim the full 100% of the property expenses.

I can't answer the other part of your question, but one the the bean-counters on here will be able to, no doubt.

 

[monalisa]

If we are not entitled on tax deduction, if in the future we decide to sell the property, can we deduct yearly tax and maintenance cost from eventual capital gain?

You should be able to capitalise the expenditure on the cost base:

Third element: costs of owning the CGT asset

The costs of owning an asset include rates, land taxes, repairs and insurance premiums. Non-deductible interest on borrowings to finance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incur to increase an asset?s value are also third element costs.
You do not include such costs if you acquired the asset before 21 August 1991.

Also, you do not include them if you:
-have claimed a tax deduction for them in any income year, or
-did not claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not ended.

You cannot include them at all in the cost base of collectables or personal use assets.

Source: http://www.ato.gov.au/General/Capit...l-gain-or-loss/What-is-the-cost-base-/?page=2

 

[Enrike]

Thanks.

If I understood information from provided link and your post correctly, we can deduct from capital gain all costs related to acquiring the asset and all maintenance and tax related cost during possession of asset.

We thought the same.

Regards,

 

[Moon91]

If i reckon correctly, you need a valuation by a QS approved in Australia to calculate CG, and therefore deduct costs. You maybe need to check that point with a tax accountant.

 

[Terry_w]

If i reckon correctly, you need a valuation by a QS approved in Australia to calculate CG, and therefore deduct costs. You maybe need to check that point with a tax accountant.

Can you back this statement up with legislation? or even link to somewhere?

 

[Moon91]

Hi Terry,

No i can't, i have had a similar discussion with a investment consultant i talked to a while ago and that is what i remember. I am happy to be proven wrong. But my 2 cents is it is worth mentioning to the OP.

 

[Paul@PFI]

Cgt

Enrike

Deduction = No. The property is a private use asset. No income. No deductions. Its a basic premise of tax law.

CGT...In Australia. Yes. No exemption as its not your PPOR. Thus it is taxable regardless of its location in the world as you are an aussie tax resident. Only when its sold of course. Other posts here have mentioned the CGT cost base issues which will work in your favour.

Now you also need to consider tax issues in the country where that property is located. Many countries have varying forms of property taxes. Some have "capital gains taxes" and some don't. Some have annual taxes sorta like our land tax. Some countries tax on the basis of tax residency and others tax property based on its source. Good example is Australia. We seek to tax all aussie property and dont care if the owner is resident or not. I know of a country where after "x" years if you are non-res you forfeit the land to govt. A 100% tax rate CGT problem !!

1.From an income tax basis it would seem straight forward. The property is owned by you and used by you. There is no income. So unlikely a foreign income tax issue.
2. Is there a foreign CGT issue ?? Remember also what constitutes a capital asset cost base in Australia is NOT same in another country. Lets use Fiji - Mythical example. They wouldnt allow cost base adjustment for ownership costs but ATO do.

This issue just sprung up this week in a disclosure from the ATO in relation to property located in Japanese ski fields. ATO and Japan's National tax Agency are sharing data on foreign owned property in the Hokkaido ski field areas !! Seems 10 aussies just got nabbed ! They sold these properties but failed to disclose anything to ATO (or JNTA) at any time. I'm no expert on Japanese tax and cant comment if they have cap gains tax. If they do a please explain might be asked by the JNTA also. Imagine they may be asked about use of the properties.

I would seek basic tax advice in the country where the prop is located as a minimum.