If you are a non-Australian resident but you have a rental income from an Australian property, the following applies to you:
You are obligated to file a tax return every year and report your "nett rental income." This is calculated by subtracting any rental deductions from your overall income from renting out your property. Deductible expenses include things like loan interest, holding fees, commissions paid to real estate agents, and even money spent on repairs.
The financial year in Australia comes to a close on the 30th of June each year.
Obtaining a tax depreciation report could be useful if the age of the property is less than twenty years, since this would indicate that the property has not been on the market for that long. This report outlines the amount that you may be able to deduct from your taxes as a result of the decline in value of the structure as well as the assets that are stored within it. There are several categories of investment properties that do not qualify for depreciation deductions.
If you are a resident of Australia, the amount of tax that is imposed to your income will be 32.5 percent (foreign resident tax rate). This rate will be increased for those of you whose yearly income is greater than $87 000.
If you sell the property and earn capital gain which implies that the price at which it is sold is higher than the price at which it was initially purchased, then the profit that you make is subject to taxation.
If you sell a property in Australia for more than $750,000, you will be subject to taxation at the time of sale; but, if you file a tax return, you may be eligible for a refund of some or all of the tax that you paid.
When filing taxes, co-owners of property must include the amount of rent that corresponds to their proportionate share of the total. Each individual owner is responsible for filing their own individual tax return. In Australia, there is no such thing as filing a combined income tax return.
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Taxes levied in Australia on rental properties owned by non-Australians
Taxation law in Australia imposes a levy not only on the rental income received by non-Australian property owners but also on the profits gained when the property is sold. This is because non-Australian property owners are considered to be foreign investors.
The tax system in Australia is founded upon the following two essential ideas, which are listed as follows:
- The Australian government has the power to tax your income no matter where it comes from if you are regarded as an Australian resident for taxes reasons.
- The part of your income that is received from within Australia may be subject to taxation by the government if it is determined that you are a non-resident alien for the purposes of taxation.
Because rent received from an Australian property is considered to be income sourced in Australia, it is subject to taxation.
How much tax does Australia impose on a foreign landlord's income from rent that they collect in Australia?
The beginning rate of taxation on rental income is 32.5 percent. A foreign resident is subject to taxation beginning with the first dollar of income generated, in contrast to taxpayers who are residents of Australia, who are allowed to earn an untaxed threshold amount of income. After the first $87,000 you make, your tax rate will remain the same at 32.5 percent, but it will increase to 37 percent after that (2016-17 tax rates).
Do I have the right to deduct expenses from my rental revenue in Australia?
There is no need to be discouraged about this circumstance because you are not required to pay taxes on the entire amount of rent you collect. Only the portion of your rental income that is deemed to be "net," which is determined by deducting all of your rental expenses from your gross revenue, is subject to tax.
Expenses include those paid to an owner's company, also known as strata fees, estate agent fees, local taxes paid to the government (sometimes known as "council rates"), water rates, insurance, repairs (but not improvements), gardening, advertising, and other costs are all allowable deductions.
If you purchased the property with the assistance of a loan, the interest that you are currently paying on that loan is tax deductible (just the interest, not the whole loan repayments).
You will be able to deduct the expenses of creating the structure as well as the assets that are contained within it for the duration of the building's life if you have purchased land and built property on it. If you have done this, you will be entitled to deduct these expenditures. Your "loss in value" deductions will result in a reduced nett rent, which will, in turn, result in a smaller tax liability for you. The date of your purchase of the property will determine whether or not you are eligible to take a tax deduction for the expenses that the previous owner of your property incurred in the process of building, improving, or furnishing your property. You have the option of requesting that a quantity surveyor generate a report for you that details the deductions that are available to you. This report can be requested from the company that is providing you with the services.
It is essential that you make sure to include deductions for all of your deductible expenses related to your rental property.
Tax levied in Australia on the transaction of the sale of a property
A "capital gains tax event," sometimes known as a "CGT event," takes place whenever a non-resident alien of Australia sells an Australian property. Because of this, it is possible that you will be required to report either a gain or a loss on your tax return.
Tax on the owners of capital gains who are not residents of the country (Australia)
The terms of the capital gains tax stipulate that property owners in Australia are required to pay a tax on any increase in the value of an asset they own if that rise exceeds a certain threshold. This regulation applies not only to people who live in Australia but also to people who live in other countries. In point of fact, the tax regulations are stricter for non-citizens who live in the country but do not have citizenship status.
To determine a capital gain, start by deducting the initial investment, known as the cost base, from the capital receipts, which are the selling price (the purchase price plus purchase and sale costs, among other things)
This is just one illustration:
A property in the amount of $700,000 is acquired by a non-native resident buyer.
The overall purchasing fees, including stamp duty, come to $30,000.
After being rented out for a few years, the property is eventually sold for $800,000.
Selling charges (estate agent's fees, legal costs) are $20,000
At first look, the gain appears to be $100,000 (given that the asset was purchased for $800,000 and subsequently sold for $700,000). But when you factor in all of the other expenses, the profit is substantially smaller.
Total expenditures are $700,000 + $30,000 + $20,000 = $750,000. This section contains a representation of the cost basis. There is a profit of $800,000 to be made from the selling of the capital. This results in a profit of $50,000, which can be computed by deducting $800,000 from $750,000. The amount of this profit may be found in the previous sentence.
A tax of $16,250 must be paid on the gain because the applicable rate is 32.5% of that gain.
Depending on the specifics of the situation, a decrease in the gain could be applied to properties that were bought prior to May 2012 even if they were sold after that date. You may be eligible for a resident reduction on the property tax if you have been a resident of Australia for some portion of the time that you have owned the property. The answer to this problem is not simple, however the gain might be anything from 0 to 50% of the original amount.
The imposition of a tax on both the acquisition and sale of real estate in Australia
When a property with a foreign resident as the owner is sold for more than $750,000, the seller is immediately accountable for paying tax on the gain from the sale of the property. Historically, a sizeable proportion of non-Australian owners sold their properties in Australia without paying any tax on the profit made from the sale of those properties. The buyer must now deduct an amount from the purchase price in order to fulfil their obligation to pay direct tax to the Australian government.
If a property with a non-Australian owner is sold for more than $750,000 on or after July 1, 2017, the buyer of the property is required to set aside 12.5% of the purchase price and return it to the Australian Taxation Office (ATO). The buyer is only obligated to pay 87.5% of the sum that was originally asked for. In order to be eligible for the additional 12.5%, the seller is obligated to file an income tax return and reveal any capital gains they may have accrued during the tax year (or capital loss).
Let's take the example that was given earlier and go into more detail about it. When real estate is sold for $800,000, the tax burden that arises as a consequence of the transaction is $16,250. The prior regulations stated that the buyer was responsible for paying the seller $800,000, and the seller was responsible for filing their tax return many months later (or possibly never), at which point they were responsible for paying the tax that they owed.
The following is the structure of the system that will take effect as of the first of July in 2017:
The asking price for the home was $800,000, and it was sold.
The purchaser is responsible for making a payment to the seller that is equivalent to 87.5% of the price that was agreed upon ($700,000), in addition to making a payment to the ATO that is equivalent to 12.5% ($100,000).
The seller is responsible for filing and submitting a tax return.
According to the assessment provided by the ATO, the total amount owed in taxes is $16,250.
Given that the taxpayer has a credit of $100,000, the ATO is required to reimburse them for an amount equal to $83,750.
If the seller has an outstanding balance for other taxes, the money that was refunded to them will be used to pay off the balance of those taxes.
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