Change in tax law: losses on UK property rental now deductible in Australia
 

Given the present housing market in the UK, I'm sure this will be of interest to a few migrants:
http://www.gomatilda.com/news/article.cfm?articleid=463

Best regards.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Thanks for the info Alan.

Just to see if I understand it correctly, if you're mortgage was £800 but your rent was only £700 you would be able to claim the loss of £100 against your income tax in Aus. If this is correct, could it reduce amount of income tax you pay per month or would it just be claimed and repaid at the end of the year in one go?

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

WOW! This is QUITE a change. This means that I can get back 35% of ALL losses incurred on my investments outside of Australia. Not bad as the previous laws took Capital Gains Tax but I could not claim any losses. Nice!:thumbsup:

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Remember that these provisions do not apply to capital losses - only losses of an income nature.

Take professional advice if you are unsure what this means.

Best regards.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

The claim for a deduction due to overseas losses would be made on the end of year income tax return, leading to a one off repayment after the return has been submitted to the ATO.

Best regards.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Just a pointless question but theoretically, if your property in the UK was up for rental for 6 months but no-one rents it does that mean that you can offset the entire costs of the house as a rental property (interest on mortgage, management and maintenance costs, etc) in your Australian return ?

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

I understand 100%. I mis-stated the losses. I meant ALL income losses. Interest and management fees, costs etc. This is still a HUGH change which will make keeping my property in the UK all the more worth it! :thumbup:

Now.. lets just hope the capital losses don't rip me a new one... :blink:

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Possibly - maybe even probably. I'd have to look into this ...

Best regards.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Cheers Alan.

More specifically if you had been renting it up for a year up until say January and decided to put it on the market, thus making it hard to rent, although now you're about to put it back on the rental market, etc. Could that period of non-rental while attempting to sell be seen as a loss on the rental income ?

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Not sure I wholly follow the question, but to adopt a phrase from PM Questions: I refer the honourable gentleman to my previous answer! :)

In other words, I have to refrain from getting involved in too technical an exchange on a forum, as I have a business to run!

Best regards.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Already have mate, and the advice seems well worth the cost. We have also recommended your services to lots of people, including a few today as it just so happens.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

So, the big question. Why is the Aus tax man and by proxy the Aus tax payer subsidising* UK (foreign) renters?


* If you don't understand what I mean by subsidising. The reason Aussie rents are low in comparison to the cost of the investment mortgage is because of negative gearing. If the government got rid of negative gearing then rents would rise. The landlords are not going to subsidise the tenants out of their own pockets.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Who cares, this is great news! :thumbsup:

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

if you were planning to rent out and keep a residential mortage on the hush would this still be justified?

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Swings and roundabouts though isn't it? Seeing as if you own a house in the UK where the rent income is more than the interest and maintenance payments, you would have to pay Australian tax on the 'income'. It's only fair you get the relief back when it works the other way. Especially as rental income on the UK house is still taxable in the UK as well, even if you are no longer resident.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

I can see your point but it's worth pointing out that the UK does not extend this perk to its own residents?

As you probably know, Aus previously allowed a person to deduct foreign net rental loses from future net rental gains so it wasn't entirely one-sided. This coincidentally is what the UK taxman allows UK residents to do whilst disallowing them from claiming losses against income.

I'm not complaining but it just seems overly generous of the Aussie tax man considering the UK tax man is not as generous to its own customers.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

We never had a rental property whilst in the UK, but we did have to do a self assesment form this year (from Oz) for our UK affairs. Surely, if you are in the UK and file your own returns via self-assesment then any 'losses' where rental expenses are more than rental income would be taken off your gross income for tax purposes? I can't remember exactly what boxes were on the self assesment form, but I'm fairly sure it included for that sort of thing. If your PAYE then you have no 'area' to claim these expenses, but if your PAYE and have a rental or oyther income source, then you should be doing self assesment forms anyway.

I'm no expert, and the above seems to make sense to me from what I understand - but then again, since when do tax issues ever make sense???

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Not trying to be abrupt but the answer is no. I had rental properties in the UK when I lived there. Net rental loses could not be offset against wage or other income. You could carry the loses onto future years to offset net rental gains (if any).

I believe that the ability to offset your rental loses against income in Aus is the main reason why the rental returns (for landlords) are generally lower in Aus than in the UK.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Seems a bit unfair. Still, when has tax ever been fair?

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

I agree and your comment does highlight a little theory of mine.

The Aus tax system seems very complex in comparison to the UK system. A lot of this complexity seems to come from atempts by the Aussie tax man to level the playing field were as the UK tax man's modus operandi seems to be that they only level the playing field when too many people take advantage of a loophole or feature of the tax system.

My original question was a bit flippant as the amount of Aussie tax payers with UK properties isn't going to produce lower (i.e. subsidised) rental returns in the UK.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

This is great news for me, now i just have to get my house here in the UK rented out !!!!!


Stu

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Well, I just called the tax office as I wasn't happy with a few things my accountant told me so I wanted to check with the ATO.

One was my pension, it is frozen. The value of it changes due to fluctuations in unit price, but I neither add - or take away form it. It has lost about 800 quid between becoming tax resident and end of June. ATO said I do not need to declare the pension anywhere on my return, it only becomes an issue when we either pay into it, draw out of it or transfer it here. If we transfer it here, we will pay tax on the increase in value between the day we became tax resident and the day it transfers, (assuming there is any increase that is). I suppose if your fund is worth over $50k, then you would also have to tick the box regarding assets worth over $50k held overseas though.

The ATO lady was very helpful, and asked if I wanted to check anything else. So I ran by her my rental property in the UK. I explained how I thought it worked. I said I put the gross income down as assessable, then the deductions against it up to a maximum of equal to the gross income as we're not allowed to claim a loss. I said that we then make a note of the net loss that we cant claim, so that on future returns, where there maybe profit, we can offset this loss. I also said I had heard this rule was changing for next year so that I could claim the loss. She said I was right, but she said I can actually claim the loss anyway by using 'Debt Deduction'. So long as the loss resulted from paying off interest it can be deducted. She said that I would put the gross income down, then the expenses equal to the income, then any remainder (assuming it arose from serving the interest) goes down on D15 with a description of "Debt Deductions in relation to a foreign property". I had a read around it o the ATO site, and seems to make sense - it looks like there is a cap on the amount of debt you can service though, so check that out first. Search for 'Debt Deduction' on the ATO site.

The only other thing that affects us is foreign exchange loss/gain. We became tax resident on 22/10/07 when the exchange rate was good(ish). We transferred our money over on 3/11/07 when the rate was not-so-good. She confirmed that we can claim the 'loss' in the difference in exchange rates, and that the ATO website has the rates listed for previous dates to allow you to work out the 'official' conversion on the relevant dates.

All seems to make sense to me, but I'm no expert! - So, I'm off to sack the accountant and file myself using the ATO etax program.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Ahhh but the question is when did you become tax resident?? I had a conversation with 2 people from the ATO for over an hour debating this.

For example this is my situation. Visa granted November 2005, came to Perth Jan 06 for 2 weeks for wedding, came back for 2 weeks in Oct 06 to leave my son with my husband who had arrived in Jul 06, then I finally came back in Apr 07 and haven't left. Did I become tax resident in Jan 06 when I travelled on my visa, or in Oct 06 (I didn't stay for personal reasons, eg had to go back to UK to work until our house sold) or was it Apr 07?

Well I got different answers from the 2 people I spoke to at the ATO. I still don't know what the answer is?

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

When did you class yourself as no longer tax resident of the UK?

Straight forward for us as, we wrapped up our affairs the day we left the UK and sent P85 to inland revenue. We classed ourselves as tax resident in Oz the day we arrived.

We did get the visa a while ago, and we did come out for a few weeks for a reccy but class that as a holiday. We werent paying tax or erning any income during those weeks so nothnig to be tax resident for.

I would say you were tax resident from April 07, but I'm no taxman. To be honest, I doubt it matters all that much as things like your tax free threshold are pro-ratered back to the day you claim you became tax resident. I dare say there's a few folk on here that know more about it than me.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

I reckon it’s Apr 07. What do I win? :D

It’s definitely not Jan 06. You become tax resident when you intend to stay permanently (or rather, indefinitely). So if you had you’re return trip planned in Oct 06 then you became resident in Apr 07.

Re: Change in tax law: losses on UK property rental now deductible in Australia
 

Wow, that IS harsh. I own rental property in the USA and I annually use the loses to offset regular income. It's one of the perks of owning rental income properties in the USA!