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Ruling
Subject: Rental property losses
Questions and answers
Are you required to include the rental property losses in the Trust's income tax return in the years the losses were incurred?
Yes.
Are you required to include the capital loss in the Trust's income tax return in the year the loss was made?
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You are the trustee of the Trust, which is not a resident of Australia for tax purposes.
The trust owned a rental property in Australia as trustee for the trust.
The rental property was purchased several years ago and sold in the year ended 30 June 2012.
The rental property made losses during the years it was owned.
A capital loss was made when the property was sold in the year ended 30 June 2012.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 855-15.
Reasons for decision
Rental property losses
The assessable income of a foreign resident includes:
· the ordinary income you derived directly or indirectly from all Australian sources during the income year; and
· other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.
In your case, you are the trustee of a trust that owns an Australian rental property.
Therefore, any income or loss made from that property must be declared in the trust's Australian income tax returns, in the year that the income was derived (or the loss was incurred). For example, for losses incurred in the year ended 30 June 2003 must be included in that year's income tax return.
Capital gains tax
A foreign resident makes capital gains (or losses) only on the disposal of taxable Australian property.
Assets that are taxable Australian property include a direct interest in real property situated in Australia (for example a house located in Australia).
In your case, you are the trustee of a foreign trust and you made a capital loss on the disposal of a rental property located in Australia.
Therefore, you are required to include this capital gain in the trust's income tax return, in the year that the loss was made.
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