Rental tax from overseas property

[seano4ever]

Hi everyone,

Been looking into purchasing a property in the USA.

My question is, if the property is cashflow positive, the income received will be subjected to tax in the USA.

Will this income be double taxed if I transfer the funds to Australia?

I have been onto the ATO website which discusses this but I cant seem to get my head around the rules
http://www.ato.gov.au/corporate/content.asp?doc=/content/00238031.htm

Can someone please advise

 

[Kris_Evolved]

Seano,

You will not pay tax twice.

The tax you pay in the USA (both state and federal) will be converted into a foreign tax offset.

You will convert the US rental income to Australian dollars and report it in your Australian tax return. You will get a credit for the tax you have already paid in the US, but any excess tax you have paid (over and above the tax you are liable for on the USA rental income) will not be refunded.

The foreign tax paid can only be used to reduce the Australian tax - which also means it doesn't cover the Medicare levy - so you will still have to pay 1.5% on the income even if the US tax covers all the equivalent Australian tax.

Also, you are probably aware the the US reports on their taxes on a calendar year basis - while we are 1 July to 30 June. Although I haven't specifically check the Australia / US double tax agreement recently, I believe you can simply report the year 1 Jan to 31 December 2010 in the Australian financial year ending 30 June 2011 because the last day of the foreign tax period (31 December 2010) falls within our 30 June 2011 tax year.

This is good and means that it will be easier for you to report the income.

I hope this clarifies.