Any loss you incur from a negatively geared overseas property can be applied against your Australian domestic income. Negative gearing refers to borrowing money to invest where the return from the investment is less than the borrowing costs. For example, the rental income from your investment property is less than the interest payments on the loan used to purchase the property. If you own an overseas property, you are able to claim your negative gearing losses on that property against your Australian-sourced assessable income.

You will be entitled to a deduction for expenses such as interest, provided you meet certain requirements and the expense was either incurred in gaining or producing the taxpayer’s assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing the taxpayer’s assessable income. The expense will not be deductible if it is:

•   a loss or outgoing of a capital nature
•   a loss or outgoing of a private or domestic nature
•   incurred in relation to gaining or producing the taxpayer’s exempt income or non-assessable non-exempt income, or
•   otherwise prevented from being deductible under another provision of ITAA 1997.

Provided you are an Australian resident and these expenses are incurred in producing an Australian assessable income, (even though the money comes from overseas,) the expense will satisfy the deduction requirement. Since the quarantining rules were removed in 2008, foreign deductions are no longer distinguished from Australian deductions.

As an Australian resident, you are taxed on your worldwide income. This means you must declare all your foreign income in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

You must declare any foreign income you receive, even if it is exempt from Australian tax. The ATO will take this income into account when working out the amount of tax you must pay on your assessable net income from both Australian and foreign sources.

Foreign investment table

When considering investment properties and foreign investments it is important that you seek professional advice, not only in regards to the financial and tax implications, but also any legal obligations. Here at The Quinn Group our experienced team of accountants, financial planners and lawyers can assist you in all your overseas investment queries. For more information on negative gearing losses and deductible expenses or any other queries please submit an online enquiry, or for any other information call us on 1300 QUINNS (784 667) or on +61 2 9223 9166.