Once you become a permanent resident you are required by Australian tax law in include your total worldwide income in your tax return and this includes your UK property. You may think that the ATO will never find out but in 2014-15 the tax office matched its records with offshore accounts held with 14 different international banking groups.
Does this mean I need to pay more Tax?
Not necessarily is the answer and in the case of a lot of people from the UK who bought houses during the property boom may actually be entitled to a refund and pay less tax now than you do currently.
What do I need to do?
Inform yourself of the deductions available under the Australian system by reading this blog and get yourself a good accountant. We deal with accountants across Australia and if you wish we can recommend one in your area if you contact us through our website at www.ryancc.net.
So what are the deductions available?
Let’s take the example of someone who recently got their permanent residency and now want to include their UK Property in their Australian tax return.
Tom earns $100,000 a year from his job as a plumber. He bought a newly built apartment in Liverpool in 2006 for £200,000. He arrived in Australia in 2010 and just got his permanent residency. The apartment currently rents for £1100 a month.
In Toms tax returns he is obliged to include this rent on his Liverpool property as income, this increases his taxable income by £13,200 a year or $22,308. However, Tom can also the include the deductions shown in the table below.
So the net effect on Toms taxable income in Australia is the $22,308 rent less the $28,211 in deductions or a loss of $5,903. As Tom’s marginal rate of tax is 39% he is entitled to a refund from the ATO of $5,903 x 39% = $2,302.
Now Tom is fully compliant with the Tax man and has an extra $2,302 in his pocket each and every year
What information and backup will my Accountant require in order to claim these deductions?
Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation of your investment property against your taxable income.
In order to do this, you need a Property Depreciation Schedule that fulfils the following requirements:
· The report needs to be prepared by a Quantity Surveyor who is registered with the Tax Practitioners Board.
· The property in the UK will need to be inspected in the vast majority of cases.
· The Quantity Surveyor needs to be a chartered member of the Australian Institute of Quantity Surveyors
· The Quantity Surveyor needs to maintain an appropriate level of professional indemnity insurance.
There are 2 types available: depreciation on Plant and Equipment, and depreciation on the cost of construction. Plant and Equipment refers to items within the building like ovens, dishwashers, carpet and blinds etc. Both these costs can be offset against your assessable income.
If you contact us through our website www.ryancc.net we will be able to provide a free estimate for what the deduction for your property should be. Please just fill in the request a quote form on our website.
Annual Interest on your Mortgage.
In Australia you can claim the full amount of interest paid on your mortgage. So in Toms case the annual interest on his mortgage was £6,300 or $10,647 which can be claimed in full under the Australian System.
The exact amount that you can deduct will be shown on your annual mortgage statement from your Irish bank which they should provide every year.
You will need to show your Accountant a copy of your mortgage statements.
Management Company Fees.
Tom’s property is an apartment and as such he needs to pay the Management company of the Complex £750 a year. In order to claim this in his Australian he will need a receipt or invoice from the company involved.
Does part of your holidays in the UK get taken up “sorting out the house”? Then you can claim that proportion of your expenses and accommodation. You need to keep a record of the time spent on the house and copies of all your receipts for the trip.
Tom spent ten days at home in Ireland and two of them are spent travelling to and inspecting the property and cleaning up in preparation for new tenants. As such Tom can claim 20% of all his car hire and accommodation costs etc..
Flight Costs can only be claimed if the main purpose of the visit is to deal with the property.
Essentially any money you spend on the property can be claimed, it’s only a matter keeping the receipts or getting back on to the companies and asking for them, they are required to keep records too so it shouldn’t be a major problem. Remember “No receipt No Deduction”. Some other items that can be claimed in this fashion would be:
· Advertising Costs
· Estate Agent Fees
· Council Rates
· Insurance Costs
· Legal Fees
· Pest Control
· Repairs and Maintenance
· Telephone Expenses – keep a record of those calls home
· Water Charges