Q: taxes on rental income from PPOR while living overseas

Hi everyone

My sister and her husband are planning to move overseas to work, for about 5 years. They will rent out her home (PPOR) for the duration.

We hope there will be some expats who can answer some of our questions.

Q1: We have been to the ATO website and understood that my sister and her husband will each have to lodge annual tax returns as non-residents and the net rental income will be taxed at minimum 29c for every $1 (no threshold like residents). Is this correct?

Q2: Also, their home is in NSW. Do they have have to pay land tax while the home is rented? We will phone the NSW OSR to check, but thought we should ask this question on the forum as well.

Q3: My sister and I own a townhouse as an investment property (IP) - tenants in common (sister 30%, me 70%). Does this mean my sister include her 30% portion of net rental income (or loss) from this IP on her non-resident tax return and pay tax as in Q1 above? If it is a net loss, can she offset it against the net income from renting her home, before paying tax? There is no mortgage on her home, so it will be a net income.

Q4: Does anyone know of good resources for reading on taxes for expats? I will post a few more questions on family trust later. My sister will see an accounting firm later, but we want to get some prelim views first.

We appreciate any answer or comment. Thank you in advance!
 
The first thing you need to do is work out whether they will be classed as non-residents for tax-purposes, which is a different question to residency for other (e.g. immigration purposes etc.). You can be a resident for tax purposes in more than one country simultaneously. It's not just a matter of being out of the country automatically makes you a non-resident. Other factors are taken into considerations, such as what ties you still have with Australia (e.g. retaining property as opposed to selling), how long you intend to be gone etc. From memory, less than 2 years and you are likely still a resident of Australia for tax purposes.

The 29c in the dollar tax for non-residents sounds right from memory. For franked dividends they take the 30c and call it even. For bank interest, if you inform the bank of non-residency status, they take out 10c in the dollar and you don't need to pay any more.

Check that Australia has a dual taxation agreement with the country your sister is going to. Then the non-resident tax paid in Australia is taken into account when calculating the tax to be paid overseas.

If they are still classed as residents for tax purposes, then they will need to declare their overseas income in Australia, but will receive a tax credit for the tax paid overseas. They will then still be eligible for the tax-free threshold and a few other perks, so things generally even out, depending on the tax situation of the other country.

Another thing to consider that just occurred to me also is to check whether moving overseas will trigger and CGT events. I seem to recall something about being deemed to have disposed the assets at market value as of the date of becoming a non-resident. This could be a significant factor in what is best done with the investment properties.

I should end with a disclaimer that it's now almost three years since I was a non-resident so some of the above info may not be accurate.
 
Thanks, Brendio, for your reply. Much appreciated your time.

Yes, I do understand about the resident / non-residents for tax purposes. My sister and husband intend to be overseas for 5 years, so they will be non-resident for tax purposes.

Some people have said that if my sister and husband only have interest income (10% withholding tax) and dividend income (no withholding tax for franked, and 30% for unfranked) - they do not need to file tax returns. However, they will need to file tax returns for rental income and pay the non-resident tax rates.

I have phoned the ATO to ask questions about CGT and trust matters, and will wait for them to call me back.

I phoned the NSW OSR office and the land tax exemption conditions for renting home while overseas are very onerous. So, inevitably my sister and husband will have to pay land tax on renting their home while overseas. However, it is a deduction against rental income.

My husband has a cousin and his wife who lived and worked in the UK for 8 years. They moved back to Sydney 5 years ago. I am going to have a chat to them as well. My sister is also talking to as many people as she can to prepare herself for the move, and to get the same facts about taxes!
 
My sister is also talking to as many people as she can to prepare herself for the move, and to get the same facts about taxes!

lol that's a good way to get some bad advice. What about just speaking to an accountant?

From the sounds of it, your sister could probably argue either way as a resident or non-resident.

However if she is retaining the family home, bank accounts, super accounts, family members in Australia, and intends to return to Australia, I would suggest she that will remain a resident for tax purposes.
 
lol that's a good way to get some bad advice. What about just speaking to an accountant?

From the sounds of it, your sister could probably argue either way as a resident or non-resident.

However if she is retaining the family home, bank accounts, super accounts, family members in Australia, and intends to return to Australia, I would suggest she that will remain a resident for tax purposes.

Thanks for your reply, bene313.

My sister wanted to get the same story, so she talked to many. She has found that the tax office was helpful - they phoned her back and answered some of her questions. She also spoke to an accountant and got the same answers for her questions. We now understand a bit more about the tax implications for her and her husband's potential move overseas.
 
Q1: We have been to the ATO website and understood that my sister and her husband will each have to lodge annual tax returns as non-residents and the net rental income will be taxed at minimum 29c for every $1 (no threshold like residents). Is this correct?

Yes, as mentioned above it needs to be determined whether they are non-residents for tax purposes.

Q2: Also, their home is in NSW. Do they have have to pay land tax while the home is rented? We will phone the NSW OSR to check, but thought we should ask this question on the forum as well.

Yes I believe so. Will need to do an Initial Land Tax Return. However pls confirm.

Q3: My sister and I own a townhouse as an investment property (IP) - tenants in common (sister 30%, me 70%). Does this mean my sister include her 30% portion of net rental income (or loss) from this IP on her non-resident tax return and pay tax as in Q1 above? If it is a net loss, can she offset it against the net income from renting her home, before paying tax? There is no mortgage on her home, so it will be a net income.

Yes, the loss will be offset against the rental income earned from PPOR.

Re CGT, when individuals cease residency they are deemed to have disposed of their "non-taxable Australian property", unless they elect for this to not apply (I understand the election is in the way you prepare the tax return - but pls check with your accountant). Example include shares, units in a unit Trust. So, for example, if she acquired some shares a few years ago for $1,000, and the market value is $1,500, she would be taxed on $500 gain on these, which is subject to a discount of 50% i,e $250 would be taxable if the shares have been held for more than 12 mths. The shares will now have a new cost base of $1,000. There will be no CGT implications while she chooses to sell these shares while a non-resident.

A rental property would classify as a taxable Australian property.

monalisa.
 
Re CGT, when individuals cease residency they are deemed to have disposed of their "non-taxable Australian property", unless they elect for this to not apply (I understand the election is in the way you prepare the tax return - but pls check with your accountant).

A rental property would classify as a taxable Australian property.

monalisa.

I think you will find this only applies to property which has no connection with Australia. An example maybe shares in a foreign company, but land in Australia wouldn't fall into this category.
 
Q1: We have been to the ATO website and understood that my sister and her husband will each have to lodge annual tax returns as non-residents and the net rental income will be taxed at minimum 29c for every $1 (no threshold like residents). Is this correct?

Yes, as mentioned above it needs to be determined whether they are non-residents for tax purposes.

There's a non-resident calculator on the ATO website which may help you. It's fairly complex to jiggle around with, but if you have troubles, you can call the hotline. It's best to try outside of normal lunch hours as there are less people waiting.
 
Very interesting thread. Thanks Terry and others for your insights.

My family and I are contemplating buying a yacht in the Med and becoming liveaboards for three years or so in the not too distant future, life has been good to us... We'll have net CF+ IPs in Australia but no foreign income or fixed address. I was presuming that we would remain Australian Residents for tax purposes and be able to use our shared income thresholds to minimise the tax payable against that income. Lets assume it is net $20,000pa CF+ we presumed we would use the trusts discretionary powers to attribute $10,000 of this to each of my wife and I and then only pay income tax on a minimal component each.

Does that make sense? The CF+ numbers above are already net of land tax as the trust structure means there is no PPOR exemption applicable.

Thanks,
Michael
 
1. Thanks, Terry, for the links to land tax and CGT. They are helpful.

2. Thanks, monalisa, for your replies to my questions. Appreciated your time. The CGT issue appears to be complicated. I have phoned the ato on this question, they phoned me back but I missed the call. So I am going to call them again.

3. Thanks, Tahoe, for your input. I will check out the ato calculator for non-residents.

Michael, what an adventure for you and family! Long time no hear from you. I have followed your developments from time to time. Glad to hear that they have turned CF+. Well done!
 
If you are going overseas for an extended period of time and have an SMSF make sure you get things right before you go !!!

http://www.omegapartners.com.au/2011/01/smsf-and-outgoing-expat/

Mike: Thank you so much for this link! I have actually found your website last week while trawling through the internet for information, and found it to be helpful. My sister is talking to her accountant on her smsf and getting similar information in your article - so that is reinforcing her understanding. She and husband do not want to close their smsf and then put the money into a small APRA fund or a retail fund, they want to appoint me or another relative as their trustee attorney (central management & control). I understand the ato will not like it if my sister and husband are seen to make decisions while living overseas, instead of me. My sister and husaband want to simplify their smsf investments in a dozen of shares and cash / term deposits. They are 55+, so don't want to lock the investments in for long term.

One thing I do not quite understand is the "active member test". In the article, it said "The final condition to be an Australian superannuation fund is the “active member test”. To be an active member, the member must be contributing to the fund – albeit it may only be occasionally or sporadically." But, then it went on to say that "The active member test is satisfied if: There are no active members etc" - Does this mean that since my sister and husband living overseas, and they will no longer be contributing to their smsf, there are no active members, and therefore their smsf will satisfy the "active member test"?
 
Hi everyone

My sister and her husband are planning to move overseas to work, for about 5 years. They will rent out her home (PPOR) for the duration.

We hope there will be some expats who can answer some of our questions.

Q1: We have been to the ATO website and understood that my sister and her husband will each have to lodge annual tax returns as non-residents and the net rental income will be taxed at minimum 29c for every $1 (no threshold like residents). Is this correct?

Q2: Also, their home is in NSW. Do they have have to pay land tax while the home is rented? We will phone the NSW OSR to check, but thought we should ask this question on the forum as well.

Q3: My sister and I own a townhouse as an investment property (IP) - tenants in common (sister 30%, me 70%). Does this mean my sister include her 30% portion of net rental income (or loss) from this IP on her non-resident tax return and pay tax as in Q1 above? If it is a net loss, can she offset it against the net income from renting her home, before paying tax? There is no mortgage on her home, so it will be a net income.

Q4: Does anyone know of good resources for reading on taxes for expats? I will post a few more questions on family trust later. My sister will see an accounting firm later, but we want to get some prelim views first.

We appreciate any answer or comment. Thank you in advance!

Not wishing to ambush the thread. which is very interesting from our point of view. My wife and I are looking to return to the Uk at the end of the year and rent out our australian home. Just starting to look into things. We have dual nationality UK/Aust. the 29c in the dollar I take it that refers to money taken after the mortgage is paid off etc? As the rent we will likely receive will just about cover the mortgage. Any advice you have gleaned above and beyond this thread would be great.

many thanks.

Mark and Kerry
 
Not wishing to ambush the thread. which is very interesting from our point of view. My wife and I are looking to return to the Uk at the end of the year and rent out our australian home. Just starting to look into things. We have dual nationality UK/Aust. the 29c in the dollar I take it that refers to money taken after the mortgage is paid off etc? As the rent we will likely receive will just about cover the mortgage. Any advice you have gleaned above and beyond this thread would be great.

many thanks.

Mark and Kerry

Tax is only on the profit = after expenses such as interest, rates, depreciation etc.
 
Tax is only on the profit = after expenses such as interest, rates, depreciation etc.

bloomers: Terryw is right. The 29c in the dollar tax for non-residents (on rental property income) is after all allowable deductions. I posted questions on this helpful forums, spoke to some ex-pats, and phoned the tax office after in order to confirm what I understood (for my sister and husband). Actually, I have found the tax office to be helpful when answering my questions.
 
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