Negative gearing benefit for Overseas Property

[mkbonline]

This question came up while discussing Negative gearing concept with an Indian colleague.

Can Australian Resident claim Negative gearing benefits from overseas property investment in below mentioned scenarios?

Scenario 1 - Buy an existing house (constructed and ready to rent out). Use PPOR equity to buy overseas property i.e Loan from Australian Bank. Rent the overseas property and bring rental income to Australia.
Negative Gearing = Rental Income - (Interest paid to Australian Bank + Expense of overseas property maintenance company + Expenses to bring rental income to Australia like bank transfer fees) ?

Scenario 2 - Buy an existing house (constructed and ready to rent out).Take loan from overseas bank (assuming they give loan).Rent the overseas property and bring rental income to Australia.
Negative Gearing = Rental Income - (Interest paid to Overseas Bank + Expense of overseas property maintenance company + Expenses to bring rental income to Australia like bank transfer fees) ?

Scenario 3 - Same as Scenario 1 or 2 but leave rental income to Overseas account.

Scenario 4 - Same as Scenario 1 or 2 but buy off the plan or under construction property which will be ready for in a year or so

PS - I understand there is DTAA (Double Taxation Avoidance Agreement) between his overseas country and Australia, so tax from property rental income will be paid in Australia

Cheers,
MKB

 

[HD_ACE]

My understanding...

You will be a non resident for tax purposes in the country you recieve rent. So you will do a tax return in that country stating income and expenses. If its positive hou pay tax in that country. If its negative then your aus accountant will use that in your aus tax return claiming your loss against aus income. If its a country with dtaa then you wont pay tax on that income twice.

But im not an accountant.

Cheers

 

[Rob G.]

You will most likely be assessed in India on the rental income.

Negative gearing in other countries is most unusual, debt deductions are usually capped and capitalised interest may not be allowed.

You will be assessed in Australia on the Indian rental income regardless of whether it is physically returned to Australia.

Subject to any thin capitalisation rules, interest is deductible in Australia under normal principles.

However, the foreign income tax offset will be capped based on the Australian marginal amount.

Given that the property is, or may be, negatively geared here then the marginal rate might be quite low.

Even though the marginal rate of tax in India is lower than Australia, any limits on debt deductions in India may effectively increase the marginal rate.

So much detailed analysis is needed.

Cheers,

Rob

 

[mkbonline]

Thanks for your reply. Can you recommend any Tax Accountant in Sydney who have experience in Overseas Property Negative gearing?

My understanding...

You will be a non resident for tax purposes in the country you recieve rent. So you will do a tax return in that country stating income and expenses. If its positive hou pay tax in that country. If its negative then your aus accountant will use that in your aus tax return claiming your loss against aus income. If its a country with dtaa then you wont pay tax on that income twice.

But im not an accountant.

Cheers

 

[mkbonline]

Meaning Australian Negative Gearing benefits can availed legally? Can you recommend any Tax Accountant in Sydney who have experience in Overseas Property Negative gearing?

You will most likely be assessed in India on the rental income.

Negative gearing in other countries is most unusual, debt deductions are usually capped and capitalised interest may not be allowed.

You will be assessed in Australia on the Indian rental income regardless of whether it is physically returned to Australia.

Subject to any thin capitalisation rules, interest is deductible in Australia under normal principles.

However, the foreign income tax offset will be capped based on the Australian marginal amount.

Given that the property is, or may be, negatively geared here then the marginal rate might be quite low.

Even though the marginal rate of tax in India is lower than Australia, any limits on debt deductions in India may effectively increase the marginal rate.

So much detailed analysis is needed.

Cheers,

Rob

 

[mkbonline]

Sharing useful links from ATO website

http://www.ato.gov.au/content/downloads/ind69513nat14233062010.pdf

http://law.ato.gov.au/atolaw/view.htm?locid='SAV/00238031'

 

[Byoung2335]

I am an USA and Australian dual citizen so I'm hoping to use this strategy to purchase my next property.