| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012381330949
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Rental property expenses- foreign rental property
Question and answer:
Are you entitled to offset the net loss from your foreign rental property against your Australian sourced income?
Yes
This ruling applies for the following periods:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You are a resident of Australia for tax purposes
You purchased a property in Place A.
The property title lists you and your spouse as joint owners.
You have rented the property out for holiday home purposes
You have incurred interest expenses
You have made a net loss
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
International Tax Agreements Act 1953 Section 4.
International Tax Agreements Act 1953 Subsection Sch1-Art6(1).
Reasons for decision
As an Australian resident, your assessable income includes income from all sources, both in and out of Australia,). You are able to deduct any loss or outgoing that you incur in gaining or producing this income (section 8-1 of the ITAA 1997). However, you are unable to deduct expenses where they are considered to be of a capital, private or domestic nature, or relate to the earning of exempt income.
Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
Schedule 11 to the Agreements Act contains the tax treaty between Australia and Country X (The Country X Convention) and operates to avoid double taxation of income received by Australian and Country X residents.
Article 6(1) of the Country X Convention provides that income derived by a resident of Australia from real property situated in Country X may be taxed by Country X and also by Australia. However, a foreign tax credit will be allowed in Australia for any income tax paid in Country X by an Australian resident in relation to such rental income.
As you have incurred a foreign sourced loss on the rental of your Country X property you are entitled to offset this loss against Australian sourced income.