Utilising Tax Credits

[mikes]

I am an Australian citizen that is an expatraite worker and has been overseas in Asia Pacific since 1996 in variouos roles.

I have accumulated (and sold) properties (in Australia) over this time and have lodged Australian Tax returns and declared the rents and costs as income but the mortage has mostly been negatively geared to various extents at different times, after payment of interest, costs associated (body corp, maintainence, rates etc). Naturally the mortage principle gets paid down over time and the properties become cash flow neutral / positive. It has been usually around this time that I buy another property as a form of forced saving, tenants contribute to paying down the mortgage and get capital gains etc.

My question is; how or if I can utilise the accumulated Tax Credits that have been generated over the years, while still being an expatriate and not a PAYE employee / Tax contributor in Australia?

I do intend to return to Australia in coming years but not right now.

Are there any structures (company or other etc) or mechanisms that I can utilise or establish to utilise these Tax Credits that I have accumulated over years to give me some monetary benefit? Or, do I have to wait to be a PAYE earner back in Australia to utilise these?

Any help greatly appreciated?

 

[Mry]

My question is; how or if I can utilise the accumulated Tax Credits that have been generated over the years, while still being an expatriate and not a PAYE employee / Tax contributor in Australia?

I do intend to return to Australia in coming years but not right now.

Are there any structures (company or other etc) or mechanisms that I can utilise or establish to utilise these Tax Credits that I have accumulated over years to give me some monetary benefit? Or, do I have to wait to be a PAYE earner back in Australia to utilise these?

Any help greatly appreciated?

Are you talking about the tax you pay overseas, the losses you have accumulated or the tax you pay in Australia?

Are you considered an Australian Tax Resident as you have worked and lodged returns?

 

[mikes]

I am a Non Resident for Australian Tax purposes.. I get paid overseas and pay tax overseas.

I generate Income in Australia from rents received that are subject to Income Tax in Australia. I also incur expenses in managing the properties, Interest, Body Corp fees, maintainance etc. These costs when exceeding income mean the financial arrangement is negativly geared. If in Australia I would get a refund or could apply for a Section 221 d (if i recall right) and this as projected could offset other income tax generated as a PAYE employee or self employed tax bill (i assume)

As I am not a PAYE or self employed Australian in Australia I cant do that so the credits (refunds) are placed into abeyance and can be used later if I return i understand. I am wondering if there are mechansims known that would allow me access to these despite being overseas..

I hope this clarifies things

 

[Terryw]

I think you mean losses rather than credits?

Your expenses from the property are greater than the income and so you have a negative income left over each year.

 

[Mry]

The correct way to phrase this would be that you have accumulated losses that you can use to offset income in the future. You would not have "tax credits" or "refunds" waiting in the wings. In other words you have say $50,000 in losses which allow you to make $50,000 in income before you start getting taxed on the income.

Its a common misconception that someone can claim tax credits back from the tax office for accumulating losses. About 10 years ago I had a new client visit me and say that he was running a business and boy does he had a huge refund waiting for him. At our 2nd appointment, he mentioned again that he had a huge refund waiting for him. I questioned him on why he thought he had a huge refund waiting for him and he said that because he lost so much money, the tax office was going to refund his losses the same way they tax him on his profits. I then explained to him that the tax office doesn't refund losses, it just lets you accumulate them year after year to offset against future profits.

I never saw him again after that.

 

[mikes]

Thanks for the correction, I agree.

So, to question, I haev assumed I need to setup a company or be a PAYE earner to utilise the accumulated losses against earnings ?

 

[Terryw]

If they are you loses then you can use them by earning income.

Setting up a company won't help as it is a separate entity. The losses can't be transferred

 

[Ed Barton]

do you have investments in your country of residence? if so might be worth selling them and buying positively geared investments (eg shares) in australia. if not maybe you should stop buying property in australia and do your 'forced' savings by buying a parcel of shares in oz every few months or whatever. i have absolutely no idea how this would effect your income tax in your country of residence though.

 

[exsyd]

If I understand this correctly - and I might not - you can "use up" the losses by NOT investing in another property when your properties turn cashflow positive. Since the rental income is income derived in Australia, you can then offset those past losses against the positive cashflow from the properties and reduce the tax payable on that income (as a non-resident you will pay tax from the first dollar since no tax-free threshold).

Not an accountant, do your own research, etc., but I was in a similiar situation for a while and I think you can do this.

 

[Rob G.]

do you have investments in your country of residence? if so might be worth selling them and buying positively geared investments (eg shares) in australia. if not maybe you should stop buying property in australia and do your 'forced' savings by buying a parcel of shares in oz every few months or whatever. i have absolutely no idea how this would effect your income tax in your country of residence though.

Ummmmm ....

Non-residents investing in Australian companies paying dividends would not normally help you.

Dividends & interest would normally be subject to withholding tax. This is a gross tax and does not go through the non-resident's tax return. Therefore no deductions on your costs of earning dividend income, and no using up of prior year tax losses as deductions.

The size of your tax losses on your rentals might be smaller than you previously thought if you borrowed from an overseas associate where that triggers a limit to your interest deductions.

Cheers,

Rob

 

[Ed Barton]

Ummmmm ....

Non-residents investing in Australian companies paying dividends would not normally help you.

Dividends & interest would normally be subject to withholding tax. This is a gross tax and does not go through the non-resident's tax return. Therefore no deductions on your costs of earning dividend income, and no using up of prior year tax losses as deductions.

The size of your tax losses on your rentals might be smaller than you previously thought if you borrowed from an overseas associate where that triggers a limit to your interest deductions.

Cheers,

Rob

thanks. didn't know that. so my poorly worded strategy is out.