Private ruling: Losses on foreign rental property
Published: May 2013
Ruling period: Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2010

Ruling: Question and answer | Are you able to carry forward losses incurred in relation to your rental property overseas? | Yes.

Relevant facts and circumstances: You have a rental property overseas. The property is owned 100% by you. You have never lived in the property and have always rented it out. You have incurred deductions which you have determined to be allowable, that are greater than your rental income, and as a result have experienced losses in each financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 36A

Reasons for decision: Summary: Before 1 July 2008, allowable deductions relating to foreign income were 'quarantined' and could not be deducted against Australian income. Foreign income was sorted into four classes, and a foreign tax loss of a particular class would arise separately from another tax loss in an income year, with the foreign loss only able to be carried forward and offset against foreign income of the same class. For the 2008-09 and later income years, foreign allowable deductions and losses are no longer quarantined, and are treated in the same way as other allowable deductions and losses. You generally make a tax loss when the total allowable deductions you can claim for an income year exceed your assessable and net exempt income for the year. The rental loss incurred in one income year may be carried forward and can be applied against Australian taxable income derived in future income years. There is no limit on the amount of losses that can be accumulated and carried forward. Losses can be carried forward indefinitely until absorbed, as per subdivision 36A of the Income Tax Assessment Act 1997 (ITAA 1997). You must utilise a tax loss at the first opportunity that is, if your income in the current income year exceeds your current year's deductions, you must offset any losses you have carried forward from previous years against your current year's income. You cannot choose to hold onto losses to offset them against future income if they can be offset against the current year's income. (If in your return for a particular year you failed to utilise a loss when you were entitled to do so, you can later request an amendment for that year.) Carried-forward losses are offset first against any net exempt income and only then against assessable income. Losses must be utilised in the order in which they were incurred. Subject to the requirement to utilise losses at the first opportunity, tax losses can be carried forward indefinitely except for: non-primary production losses incurred before the 1989-90 income year, which are extinguished and can no longer be utilised, or foreign losses incurred before the 1999-2001 income year, which are extinguished and can no longer be utilised. There are restrictions on the utilisation of foreign losses incurred before 1 July 2008. In your case, you are able to carry forward the losses (derived from allowable deductions) made on your foreign rental property to be applied against your Australian income.