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desreb

UK Tax Personal Allowance on Rental Income while in Oz?

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Hi again,

My wife and I moved to Oz from UK in 2011, were AU residents 2011-16, and citizens 2015-16. We're now back in the UK, and belatedly filing our 2015-16 AU Tax Return.

Since we were renting out our UK house, around half-way through our AU residence, we paid off enough of the mortgage that we started receiving a moderate net income from the house that was still well within the personal allowance. All the time we were in AU, we were declaring the net income on our AU tax return, and paying tax on it.

So - I was doing the 2016 return, and I had forgotten how we had declared the house the previous year. I did some googling, and came to the conclusion that we should declare it in the UK.

Specifically the text is:

ARTICLE 6 
Income from real property 
1 Income derived by a resident of a Contracting State from real property may be taxed in the Contracting State in which the real property is situated.
2 The term "real property" shall have the meaning which it has under the law of the Contracting State in which the property is situated. The term shall in any case include: 
(a)  a lease of land or any other interest in or over land; 
(b) property accessory to real property; 

So - it seems we should have been assessed for tax on it in the UK primarily, in which case it would be within the UK personal allowance, and no tax paid. Hence no tax paid in AU either?

This HMRC consultation from 2014 about removing the personal allowance for non-residents appears to confirm the case, by virtue of the fact the consultation sees it as a loophole that HMG want to close!

So, my questions are:

  • Am I reading this right? Can I declare it on my UK tax return, and pay nothing on my AU tax return?
  • If we've been doing this for 2011-14, can we re-file previous years' returns to reclaim the tax paid in those years, if significant?
  • How far back should tax be reassessed (as I think we were originally claiming a deduction on a net loss on the house of mortgage over rental income during around 2011 to ?)

Many thanks!

 

Damo

 

 

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You need to declare it on both tax returns.  If you pay no tax on it in the UK, you will be liable for tax on it in Australia.

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Before you were an Aus citizen shouldn't the rental income have been untaxed in Aus?

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14 minutes ago, akiralx said:

Before you were an Aus citizen shouldn't the rental income have been untaxed in Aus?

Has nothing to do with citizenship - but it is dependant on visa-type.

People on permanent visas are liable to pay tax on world-wide income.

People on temp visas only pay tax on Australian income.

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On ‎29‎/‎10‎/‎2017 at 21:32, desreb said:

So, my questions are:

  • Am I reading this right? Can I declare it on my UK tax return, and pay nothing on my AU tax return?
  • If we've been doing this for 2011-14, can we re-file previous years' returns to reclaim the tax paid in those years, if significant?
  • How far back should tax be reassessed (as I think we were originally claiming a deduction on a net loss on the house of mortgage over rental income during around 2011 to ?)

 

No, you're not reading if right. You must declare it on your UK tax return and you may offset the tax you pay against your AU tax bill. If the tax you pay in the UK is higher than the amount of tax due in Australia then you pay nothing on your AU tax bill, if it's lower you pay the difference on your AU tax bill but since you still get the benefit of your UK Personal Allowance you pay no tax in the UK and so will have nothing to offset against your AU tax bill. Consequently you just pay the full amount of AU tax. The double taxation agreement stops you from having to pay double tax but it doesn't reduce your tax bill any lower than the higher of the two countries tax bills (and it spells out which country gets first bite - in the case of a rental property in the UK, HMRC have first bite which is the meaning of "Primarily taxed in the UK" - but their Personal Allowance diet means the ATO gets to scoff it all once it is "Secondarily taxed").

You can re-file previous years returns but based on the info you've given you won't have anything to reclaim.

An amendment to an Australian tax return must be made within 2 years of the assessment but you can ask to raise an objection to an assessment when outside the amendment limit.

 

Edited by Ken
  • Like 1

Chartered Accountant (England & Wales); Registered Tax Agent & Fellow of The Tax Institute (Australia)

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Hi Damo.

What was your visa status in Australia?   As has been noted already, if you were a temporary visa holder the rental income from the UK wasn't taxable in Australia.

If the income was taxable in Australia you should be able to look at claiming a tax deduction for the depreciation of fixtures, fitments, etc in the let property - if not claimed already you can look at lodging amendment requests for 2 tax years, and maybe a further 2 years on appeal (as Ken has said).

Feel able to ping a PM to me if you'd like to explore further.   For reference I'm in the UK presently, so can also call you to discuss - I'm on a plane back to Melbourne next Tuesday morning (after which I can call you from Victoria).

Best regards.


Managing Director, Go Matilda Visas - www.gomatilda.com

Registered Migration Agent Number 0102534; Registered Tax Agent (Australia)

Chartered Accountant (UK, and Australia)

T - 023 81 66 11 55 (UK) or 03 9935 2929 (Australia)

E - alan.collett@gomatilda.com

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