Negative gearing IP in Oz as a non resident

Hi,

Has anyone done something simmilar that they might be able to share their thoughts.

I have an IP in Australia that will be rented (negatively geared) whilst Im living overseas, therefore I'll be classified as a non resident of Australia.

Will I be able to claim all my losses from the IP over many years while Im away then use these accumulated losses to offset income when I'm back in Australia? or alternatively can i claim these losses against income earned overseas where I will be deemed a resident?

Any suggestions on how best to go about this would be much appreciated.
 
Not an accountant but if you dont earn any income in a financial year, and dont pay any Australian tax, then there is nothing to negatively gear against, is there!
 
NSW,
I also think my first question is a feasible yes, was just looking for some confirmation. On the second question I would assume a NO also. Thanks for the link to the book, will check it out.

Pushka,

If you put it like that then ofcourse. However, lets think about it from another perspective. If one can ordinarily roll losses each year into the next when you have more losses than gains in a given year, then there should'nt be any reason one cannot put in a tax return with only losses that can be rolled over and accumulated to be used against future income.

I have spoken to an friend who is an accountant, my previous accountant and the ato. However, no one seems to be entirely sure on the ruling, so I have applied for a specific ruling on the matter. Will get it in 28 days.

BTW: Once I obtian the response from the ato then I will post it here for future reference.
 
When people are overseas, every government wants a slice of the pie??

Are you sure you will be a non resident??, will you pass the domcle test, from what your explaining, i dont think you will..............thus you might be lumped with Australian tax on world wide income.

Go and see an accountant...
 
Shaneelastic,

I mentioned in my previous post that I have spoken with accountants and have done some research yet have'nt got a definitive answer, that is why Im asking my questions here.

I will definitely be a resident of Canada as I have just about every tie there is through the domicle test, also making me a non resident of Australia.

What do you mean this one area you shouldn't do?
 
Shaneelastic,

I mentioned in my previous post that I have spoken with accountants and have done some research yet have'nt got a definitive answer, that is why Im asking my questions here.

I will definitely be a resident of Canada as I have just about every tie there is through the domicle test, also making me a non resident of Australia.

What do you mean this one area you shouldn't do?

The domicle test is about being in Australia and a area under Australian tax law.

When you say that you have ties to Canada, do you mean you have family and property over there, if so your on the right track.

Secondly, there is a source of income test, as a non resident you will be paying non resident tax rates on the rental income, if thi sis the case, forget the ATO and the suburban accountants, you need advice on the canadian system.

Also, in respect to private rulings, my opinion of them is only use them if your accountant suggests so or the amount of $$ involved in tax would mean that you are significantly disadvantaged.

If you can show application of tax laws, you will generally get both GIC and any fines reimbursed, thus youd be in front anyway,
 
I did the domicle test on the ATO website stating I will be a non resident of Australia and seeing that I will be setting up residence in Canada with my family I am quite cinfident I will be taxed as a resident of Canada.

I have received independant advice from an international tax accountant and also from a Candian accountant, further more after some reseach on my part and from what I was told by an ATO advisor the situation seems to be this:

As a non resident of Australia who owns an IP that would be considered negatively geared I would be able to claim losses which can be accumulated each year and used against any income earned in future years as a resident of Australia, so long as an income tax return is submitted each year.

In relation to the second question which I have posed it to a Canadian tax advisor, however yet to get a response. If the Canadian government deem it suitable to tax me on worldwide income then they should also be able to allow me to use losses from the IP to offset my income whilst in Canada.

My guess is I will have to choose whether I want to file each year to build up the losses in Australia to use in future years or whether I want to use the losses against my Canadian income if able to do so.
 
I am also interested in this. Myself and my wife both own I.P's in Oz, but we are currently living in London. We are only over here for 12 - 18months, so we will still have earned an australian income in the two tax years. But from what my accountant told me, we can just carry the losses forward to when we get back to oz

Ben
 
Ben - I'm doing the same thing, going to London to work for a year or two while my IPs are negatively geared. Because I am still a resident for taxation purposes, all overseas income is taxed (thank you K Rudd for introducing this) but any tax paid in the UK can be used as an off-set.
 
yeah, it sucks *** that UK income is taxed. But the pound is crap compared to the AUD so at least my income here wont add to much to my australian tax. Plus, I did a few months of travel before I started work, and will do a few months more when I leave, so it will average out to be a pretty low salary overall

Ben
 
Because I am still a resident for taxation purposes, all overseas income is taxed (thank you K Rudd for introducing this) but any tax paid in the UK can be used as an off-set.

You can go here http://www.liberal.org.au/ to register your displeasure against the recent changes to Section 23AG. Please do. The web site says that if they receive 100 supporters, then it will trigger a response from the Shadow Parliamentary Secretary.

cheers
 
Goldigger,
We have been through this in 2002 when Rob (AlmostBob) moved to Canada with me. Having negative income from Aus will only be considered Zero income.

When Rob moved here I lost a great deal of my Child Tax Benefits for the next year because they considered his income from the previous year. It made no difference that we weren't married, he lived in Australia, and we hadn't even met.

I am in the last stage of my Permanent Residence application, and should receive approval in the next couple of weeks.
We will be a bit of the opposite to you.
We will living the majority of the year in Australia but all of our income will be derived from Canada.
We will be claiming travel costs to return to Canada every year to manage our properties. Our Tax Preparer thought we wouldn't be able to so I called Revenue Canada, and it seems we have a case for it.
They suggested I ask for a ruling (can be expensive), claim without including and asking later to have them included, or my suggestion...claim it, have them object and argue it from there.
 
Hi Kathryn,

There seems to be so much grey area around these issues, after doing some extensive research and managing to get only conflicting information from accountants in Oz and Canada Im still trying to get to a difinitive answer from both countries. I think this is the way they like it ;)

You said "Having negative income from Aus will only be considered Zero income."

Does that mean negative income (losses from IP) cannot be used against Canadian income whilst in Canada? Revenue Canada are being quite ambivalent on the matter.

We will be claiming travel costs to return to Canada every year to manage our properties. Our Tax Preparer thought we wouldn't be able to so I called Revenue Canada, and it seems we have a case for it.

Did Revenue Canada state how much travel costs can be claimed to manage an IP overseas?

When I asked about a ruling I was'nt even told about price, what would be costly about it. Im thinking maybe I should try and claim what i feel is suitable and as you say, just argue the matters afterwards.
 
Goldigger,
You are right. Everyone seems to tell you something different.
I believe if it's a grey area, and you think you can argue your side, go for it.

They told us a ruling would be around $10 a hour...who knows how long they would take.I'm not willing to pay for something that will be free, should I decide to just "take it".

We were told we couldn't use losses from Australia to offset Canadian income.

Since we only went back to Australia once in 5 years to visit Rob's family, we consider using 20% personal and 80% business as a fair guage.
We will be actively involved when we return (from May-mid Sept every year) as we self manage.Will be using an assisstant to follow our directions while in Australia.
We only plan on claiming the flights.Not the meals, transportaion to and from airports and lodging.
 
Goldigger,
Just got off the phone with Revenue canada.
I may have been wrong concerning using Australia losses against canadian income.

According to Revenue canada:
The Rental Guide T4036 doesn't discriminate between rental income. Doesn't specifically mention Canadian properties (haven't looked myself)You must apply the same rules with the Aus rental losses In Canada.For example, Canada is not permitted to use CCA to create a loss.I imagine you would be required to use the Jan 1-Dec 31 as your tax year.

Thank you for having me look again :)
Might open up more doors for us.

It will certainly create a lot of extra paper work.
What else do us property investors have to do, besides counting our money?:D
 
Nice work making the call, was going to get to it myself. Spent a fair bit of time on the net and it's amazing how much I can find on taxing rental income but almost nothing on using losses.... funny that;)

anyways this is what I found, it is taken from an article i dug up. Take note of the blue writing.

"Taxation of Canadian Investment Abroad
Branch Income
When the foreign operations of a Canadian resident are conducted through a branch (a permanent establishment located in a foreign country), the branch's income is included in the resident's income to arrive at Canadian taxable income. A foreign tax credit can be claimed in respect of foreign taxes levied on income and profits that are attributable to the branch. The credit is limited to the Canadian tax payable on the foreign-source income computed on a country-by-country basis.
While Canadian taxation cannot be deferred when a branch structure is elected, foreign losses are deductible against Canadian source income"


To me this above piece reads as though one would be able to use those losses. Took a look at The Rental Guide T4036, what I don't like about this is that it is very ambiguous as to whether they are refering to overseas property or Canadian, almost intentional you could say. What I want is a clear understanding from Revenue Canada as to whether I can use those losses, will continue untill I get it.

On another note:

You most probably already know this, it refers to claiming travel deductions.

"You are right. According to the CRA's website, if you only own one rental property, you can only claim local travel to carry out repairs. If you own two or more rental properties at different locations you can claim ALL travel expenses connected with managing them.

This is a spiteful little restriction. If you are paying tax on the income you should be able to deduct the cost of earning that income. The default position of the Income Tax Act is that expenses are deductible as long as they are a) incurred to earn taxable income and b) reasonable. I guess this restriction is there to stop people deducting the cost of holiday travel by claiming they are visiting a rental property e.g. rent out your cottage for 4 weeks in the summer and claim all your other trips as deductible expenses.

The inference is that if you have two or more rental properties in different locations you are in a genuine business and if you have one you are not.

The CRA's website does not make a reference to the law on this. I would love to see the section of the ITA they rely on."
 
Goldigger,

The information you provided is for a Canadian resident with foreign branch with a permanent establishment in the overseas jurisdiction and in previous posts you are talking about an individual holding a property. Branch income and foreign resident individual income is very different. I wouldn't necessarily apply the laws re branch income and deductions to an individual.

How are you going to claim you have a branch structure with a permanent establishment in Australia when the property is held in your own name. Where is the central management and control ? Sounds like it will be in Canada if you are living there. What about CGT if you do transfer the asset to a branch structure ? Lots of issues there.
 
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