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 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 Irish people who bought houses during the boom you 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 at firstname.lastname@example.org.
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 Irish 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 Galway in 2006 for €350,000. He arrived in Australia in 2010 and just got his permanent residency. The apartment currently rents for €850 a month.
In Toms tax returns he is obliged to include this rent on his Galway property as income, this increases his taxable income by €10,200 a year or $15,692. 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 $15,692 rent less the $27,262 in deductions or a loss of $11,569. As Tom’s marginal rate of tax is 39% he is entitled to a refund from the ATO of $11,569 x 39% = $4,512.
Additionally, Tom has to pay the Irish Government Tax and his net income for the year under the Irish system is €10,200 rent less €9,958 in deductions or a profit of €243. This is taxed by the Irish government at 20% so he needs to pay €49.
Due to the Double Taxation agreement between Ireland and Australia this amount can be claimed back in full from the ATO as a Foreign Tax Offset. This takes Toms total refund to $4,587 ($4,512 plus $75 for the foreign tax offset).
Now Tom is fully compliant with the Tax man in both Jurisdictions and has an extra $4,587 in his pocket each and every year.
This website has on online calculator that can help with estimating the deductions in your particular circumstances.
Toms Deductions under both Jurisdictions.
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 Ireland 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.
As Irish properties cost a fortune to build during the boom years the deductions are substantial. If you contact us on this website we will be able to provide a free estimate for what the deduction for your property should be. Please just fill in the online enquiry form. A more detailed explanation can be also be found as a blog on this site.
Annual Interest on your Mortgage.
Under the Irish system only 75% of this cost is allowable but in Australia you can claim the full amount. So in Toms case the annual interest on his mortgage was €7,650 or $11,769 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 €1,250 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 Ireland 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 expense, car hire and accommodation costs. Tom cannot claim 20% of the flight costs as the main purpose of the trip was for holidays, if the whole purpose of the trip was to visit the property he could claim the flights.
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
Irish Tax and Foreign Tax Offsets.
As there is a double taxation agreement between Ireland and Australia any tax you pay in Ireland can be claimed back in full here from the ATO as you cannot be taxed twice on the same income. This is better than a deduction as you actually get all of the money back in your pocket. These are called Foreign Tax Offsets. What this means in effect is that you can get yourself up to date with the Irish tax man at no extra cost whatsoever. If you were like some people and never paid the NPPR tax a couple of years back (largely because they were in Australia and never knew it existed) you will realise the importance of keeping the Irish revenue happy. This tax was for €200 initially and if it wasn’t paid it resulted in €7,230 in penalties!!
Anybody with this amount outstanding now cannot sell their property until this amount is discharged so it’s worth sorting out your Irish affairs as well