Taxation

A non-resident owning property in Australia is required to lodge a tax return each financial year where the property is available for rent.  The financial year runs from 1 July to 30 June.  To apply for an Australian income tax file number it is necessary to lodge a form with the Taxation office titled "Tax File number - Application or enquiry for individuals living outside Australia".  Proof of identity documents can be lodged with the application, or copies can be certified at an Australian embassy, consulate or high commission.

The rates of tax for non-residents for the year ending 30 June 2010 are as follows:

Tax rates 2009-10

The Australian tax return will include any rent received during the financial year.  Examples of allowable deductions include:  

• advertising for tenants
• bank charges
• body corporate fees and charges
• cleaning
• council rates
• electricity and gas
• gardening and lawn mowing
• in-house audio/video service charges
• insurance:
       -     building
       -     contents
       -     public liability
• interest on loans
• land tax
• lease document expenses 
       -     preparation
       -     registration
       -     stamp duty
• legal expenses (excluding acquisition costs and borrowing costs)
• mortgage discharge expenses
• pest control
• property agent's fees and commission
• quantity surveyor fees

Fixtures and fittings within a property can be depreciated.  The cost of construction of the building, or structural improvements to a building can be depreciated at 2.5% per annum on a straight line basis.  It is recommended that a quantity surveyors report be obtained to identify the cost of construction, and the cost of any items of plant within the property that can be depreciated.  The cost of a quantity surveyor’s report is usually between $500 and $600, and is tax deductible.

Capital gains tax will generally apply to the sale of a rental property.  Where the property has been held for more than 12 months, the gain is reduced by a 50% discount (ie only 50% of the gain is subject to tax).  The capital gain is subject to tax at the owner’s marginal rate.  When calculating the capital gain it is necessary to include:

·         The cost of the property (ie land and buildings);

·         Stamp duty;

·         Settlement fees;

·         Statutory fees and charges;

·         Selling fees.

For properties purchased after 13 May 1997, any amounts claimed as a deduction for depreciation of the building or structural improvements are added back in determining the capital gain.

If a capital loss arises from the sale of the property, the capital loss can be carried forward indefinitely, but can only be offset against capital gains.

These comments are of a general nature only, and subject to legislative change.  Specific advice should be sought from a tax professional.