Using losses on overseas investment income against Australian income

April 13th, 2011 | Accounting News, Consumer News, Financial Planning News, Legal News, Tax Advice and Updates

Any loss you incur from a negatively geared overseas property can be applied against your Australian domestic income. Negative gearing refers to borrowing money to invest where the return from the investment is less than the borrowing costs. For example, the rental income from your investment property is less than the interest payments on the loan used to purchase the property. If you own an overseas property, you are able to claim your negative gearing losses on that property against your Australian-sourced assessable income.

You will be entitled to a deduction for expenses such as interest, provided you meet certain requirements and the expense was either incurred in gaining or producing the taxpayer’s assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing the taxpayer’s assessable income. The expense will not be deductible if it is:

  •  a loss or outgoing of a capital nature
  • a loss or outgoing of a private or domestic nature
  • incurred in relation to gaining or producing the taxpayer’s exempt income or non-assessable non-exempt income, or
  • otherwise prevented from being deductible under another provision of ITAA 1997.

Provided you are an Australian resident and these expenses are incurred in producing an Australian assessable income, (even though the money comes from overseas,) the expense will satisfy the deduction requirement. Since the quarantining rules were removed in 2008, foreign deductions are no longer distinguished from Australian deductions.

As an Australian resident, you are taxed on your worldwide income. This means you must declare all your foreign income in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

You must declare any foreign income you receive, even if it is exempt from Australian tax. The ATO will take this income into account when working out the amount of tax you must pay on your assessable net income from both Australian and foreign sources.

Foreign investment table

Have you received income from overseas other than a salary, pension or annuity?
From 1 July 2008, foreign income is calculated on a whole-of-income basis.
Do you have interests in a foreign entity or dealings with a related party?
Income may be attributed to you even if it hasn’t been distributed. You may also have special reporting obligations.
Have you made a capital gain on the disposal of an overseas asset? You may need to declare it in an Australian tax return and pay capital gains tax.

Here at The Quinn Group our experienced team of Financial Planners, Accountants and Lawyers can provide you with the total solution and assist you with all your overseas investment queries.  For more information on negative gearing losses and deductible expenses, contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.