You could be missing out on a refund!
First it is important to understand that the Australian Tax System is very different to the Irish/UK systems when it comes to investment properties, so if you are basing your knowledge on what you can claim or not on the Irish/UK system you are most likely paying too much Tax!
The major difference between the Irish and the Australian tax systems in relation to property is that under the Australian system you can claim for depreciation on the construction cost of your property. For example a typical property in Ireland costs about €200,000 to build, this can be claimed as a deduction over 40 years or €5,000 per year.
At current exchange rates this could reduce your taxable income in Australia by $7,500 every year.
If you haven’t figured it out already this is largely the reason that so many people in Australia are falling over themselves to buy investment properties. This is more commonly known as negative gearing, which basically means that if you have a loss making investment that you can use that loss to reduce your taxable income.
So you may think that your property isn’t making a loss. When depreciation is taken into account you could very well be making a loss under the tax system.
Contact us through this website for a free estimate of what the depreciation deductions may be on your property.
You get to claim back the tax that you have been paying to the Irish Revenue
Due to the Double Taxation Agreement between Australia and Ireland you cannot be taxed twice on the same income. So subject to certain limits any taxes paid in Ireland can be claimed back here in full as foreign tax offsets.
An offset is even better than a deduction as it reduces the tax you need to pay dollar for dollar.
This also means that you can become compliant with the Irish Revenue at a much reduced cost which is important if you ever intend to return home or sell the property. This also applies to properties in the UK.
You are required by law to include the income for your property in your Australian Tax return.
Once you become a permanent resident you are required by Australian tax law to include your total worldwide income in your tax return and this includes your Irish property.
You may think that the ATO will never find out but more and more the ATO are using methods such as electronic data matching to ascertain whether people are declaring all of their income in their tax returns.
If you would like to know how extensive these data matching programs are just have a read of the blog on data matching on this site.
If the ATO find out, you miss out on claiming for property depreciation
Property depreciation which is a major deduction as we discussed earlier (typically $5,000 to $10,000 for properties built this century) but in order to claim depreciation you need to have a depreciation report from a registered quantity surveyor.
So if the Inspector of Taxes find outs through his data matching program for example that you have income you haven’t being declaring he makes an assessment of what you should pay based on the information to hand at that time, so if you don’t have a depreciation report you don’t get to claim a deduction.
This has been the subject of a recent court case in New South Wales where the tax payer tried to get a Quantity Surveyors report after he got caught not declaring income. The court rejected the QS report, FCT V Rigoli .
Now this would be a real pity if your tax liability was very little or you might have been due refunds for all the years affected.
The key is to at least find out what your particular liability/refund actually is, at least that way you know what kind of a risk you are taking.
There are no penalties if you come forward and declare your property voluntarily
Not alone are there no penalties you can also back date any deductions that you may be due for up to typically 3 tax years
What do I need to do to find out where I stand?
Fill out a request a quote form on our website and we will send you a free estimate of the deductions relating to depreciation available on your property.
Also I would suggest having a read of some of our other blogs on the subject.