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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3801
Experience:  20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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I am considerting purchasing an overseas investment property

Customer Question

Hello Pearl, I am considerting purchasing an overseas investment property and would need to understand the tax implications and offsetting possibilities
JA: The Expert will know how to help. Please tell me more, so we can help you best.
Customer: ok the investment is about to be built and the country is Germany. I will take up a loan of approximately 1m EUR from a German bank and would contribute 10% equity plus costs. The completion date is end of 2019. What expenses are tax deductible in Australia respectively how is the overall tax calculated once I receive rental income. How are exchange rate aspects considered ?
JA: Is there anything else important you think the Expert should know?
Customer: I am a German citizen and permanent resident in Australia. I earn 100% of my income in Australia at the moment
Submitted: 1 month ago.
Category: Tax
Expert:  taxmanrog replied 1 month ago.

Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

Please give me a few minutes to type my answer.

Expert:  taxmanrog replied 1 month ago.

Sorry, I just saw that you are in Australia, not the US. I will opt out and let another expert respond.

Good luck!

Expert:  Barbara replied 1 month ago.

Different expert here - my name is ***** ***** I will be happy to assist you.

You must include rental income from overseas properties in your Australian tax return.

If you pay tax in another country (Germany) on your rental income, you can claim an foreign income tax offset in your Australian tax return.

https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-overseas/Rental-income-from-overseas-property/

Before you calculate your net income, you must convert all foreign income deductions and foreign tax paid to Australian dollars.

You can use the exchange rate at prevailing times OR an average exchange rate.

https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Foreign-income-of-Australian-residents/Converting-foreign-income-to-Australian-dollars/

The following link contains information regarding the expenses you can deduct from the rental income you receive:

https://www.ato.gov.au/individuals/income-and-deductions/in-detail/rental-property-expenses/

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Expert:  Barbara replied 1 month ago.

Just following up with you to see if you have any other questions. If so, please let me know so I can further assist you.

Customer: replied 1 month ago.
Dear *****, thank you. One additional question would be how to consider the amortization because there are different amortization / depreciation rules for real estate in Germany as opposed to australia. Australia can for instance write off the building over 40 years, in Germany the duration is 50 years (I think). This obviously has an impact on after tax cash-flow. There are also different rules regarding capital gains taxation. Germany requires 10 years before it is not considered (definition of speculation period) whereas Australia has specific rules depending on whether it is owner occupied or an investment. How does that fit together ?
Expert:  Barbara replied 1 month ago.

The easiest way to claim your full depreciation deductions is to obtain a quantity surveyor’s report (compliant with the ATO requirements).

See the following link: http://www.austexpatinvestor.com/australian-tax-implications-overseas-investment-property/

As I previously mentioned, you would be filing tax returns in Germany and Australia.

Any capital gains tax you pay to Germany will be credited on your Australian tax return.