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Edited version of private advice
Authorisation Number: 1051639008895
Date of advice: 24 February 2020
Ruling
Subject: Foreign rental income
Question
Will the Commissioner exercise his discretion to exempt you from paying tax at your Australian tax rate on foreign income derived (but not received) from a rental property in Country Z which was obtained prior to your arrival in Australia and without funds generated from Australian income?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You lived in Country Z for XX years.
While living in Country Z you purchased a property in City X.
You were a non-resident of Australia for taxation purposes for the period you lived in Country Z.
You returned to Australia to live in 20XX.
You have been renting the property in City X out since your return to Australia in 20XX.
The rent from Country Z property pays the interest on the mortgage and the residual goes into investment bonds to make the final payment due in full on the completion of the loan.
None of the rental income leaves Country Z.
You pay tax on the rental income in Country Z at the lowest marginal tax rate.
You are including the rental income in your Australian tax return and paying tax at the highest marginal tax rate.
You are being taxed in Australia in excess of $X per year
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.
As a resident of Australia for taxation purposes you are required to declare your world-wide income in your Australian tax return under section 6-5 of the ITAA 1997.
There is no discretion in Section 6-5 of the ITAA 1997 to exempt anyone from paying tax on foreign income at their marginal tax rate.
The Commissioner does not have any discretion to exempt you from paying tax on the rental income derived in Country Z on the rental property in Australia at your marginal tax rate.
As discussed with you the ATO does not make the taxation legislation Parliament does and the ATO administers the law.
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