Edited version of your written advice

Authorisation Number: 1013126260985

Date of advice: 17 November 2016

Ruling

Subject: Foreign rental property

Questions and answers:

1. Should your Australian income tax return show income and expenses on the basis of the period 1 July 2015 to 30 June 2016?

Yes.

2. Is the foreign tax paid on the income included in the relevant Australian income year the maximum foreign income tax offset that can be claimed?

Yes.

3. Can you include a depreciation deduction, based on a foreign methodology, in your Australian income tax return?

No.

This ruling applies for the following period

Year ended 30 June 2016

The scheme commenced on

1 July 2015

Relevant facts

You are an Australian resident for income tax purposes.

You own a rental property in Country T.

You have derived income and incurred expenses in relation to your Country T rental property.

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 6-5

Income Tax Assessment Act 1997, Section 8-10

Income Tax Assessment Act 1997, Division 40

Reasons for decision

Question 1

The Australian income year begins on 1 July of a calendar year and ends on 30 June of the following calendar year. Where a taxpayer derives assessable income and in the process incurs expenses in an Australian income year they are required to lodge an income tax return to declare the income derived and expenses incurred. A taxpayer can only declare income and expenses in the Australian financial they are either derived or incurred.

In your case you are an Australian resident for income tax purposes and have derived income and incurred expenses in relation to a rental property located in Country T rental property. Therefore you are required to include the income and expenses in your income tax return at the time they were either derive or incurred according to the Australian income year.

Question 2

Differences between the Australian and foreign tax systems may lead to a taxpayer paying foreign income tax in a different income year from that in which the income or expense is included in their income or expenses for Australian income tax purposes. A taxpayer might have paid the foreign tax in an earlier or later income year. However, the offset can only be claimed after the foreign tax is paid.

If a taxpayer has paid foreign income tax after the year in which the related income or gains have been included in their Australian income tax return, they can claim the offset by requesting an amended assessment for that year. A taxpayer who has foreign sourced income has up to four years to request an amendment to their assessment from the date they paid the foreign income tax. A taxpayer should also request an amendment if there is an increase or reduction in the amount of foreign income tax they paid that counts towards the offset.

In your case, you will be required to apportion the tax paid in two Country T income years when calculating your foreign income tax offset. This may mean that you will have to request an amendment after you pay your Country T tax on income received in the period X, this will be after you pay any tax payable in Country T for the year Y.

Question 3

An Australian resident taxpayer is entitled to a deduction for the decline in value of a certain assets under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997). Rental properties are depreciable assets for the purposes of Division 40 of the ITAA 1997

In your case, you are an Australian resident for income tax purposes. Despite the rental property that you own being located in Country T, you are only entitled to apply the rates of the decline of value of your property according to Division 40 of the ITAA 1997.