Overseas Property Depreciation Report

G'Day and hope everyone is well !

Have a question regarding overseas property.

So if i take a shine to properties in Indonesia, like Bali, or Thailand, how do i go about getting a depreciation report ?

These countries have quantitative surveyors, but would they be able to advise on the construction costs ?

 

Contact BMT / Depreciator. They have some overseas services.

I would also determine if those countries allow foreign property ownership.

 

Unfortunately, we don't anymore (for a few reasons).

 

Are capital work deductions in these countries not allowed by the ATO ? or
are there difficulties in getting the construction costs from the quantative surveyors in these countries.

Thank you !

 

The later.

 

@Girraffe - you will have to comply with the tax rules of the country that your property is located. They may or may not require a qs or they may not allow neg gearing or permit deductions. You will have to comply with tax law in both regions.

 

Australian tax law allows a compliant QS report OR costs of actual construction to be eligible for Div 43. / Div 40. The issue is more about how that is determined. The compliant QS report is the problem as it would need to be issued by a QS who is a registered tax service provider. Using actual building costs may be easier IF you can ascertain this - easier for a house than a apartment for example. Far easier for reno's and new builds.

The source country likely wont mirror this deduction and so if two returns are being prepared the source country taxable income may be higher the the Australian. Of course if any foreign tax is paid it MAY be creditable here but if its not a tax treaty partner country double tax is possible. Thailand and Indonesia are both treaty countries.

Tax compliance in foreign countries can be complicated by minor issues. eg receipts in foreign languages and evidence of payment and determining if they are genuine and arms length and not a fraud. The ATO expects copies in english or a certified translation etc. So a audit issue could become costly and complex for a minor verification with these issues plus foreign exchange translation issues. The ATO average ex rate for the year can be a easier approach where a foreign denominated account is maintained. If you maintain a AUD account you will vastly increase complexity ans the actual exchange rate varies for each and every instance.

 

All of the above and more. In a nutshell, we stopped doing it because a.) we couldn't guarantee the kind of compliance and attention to detail we demand of our work, and b.) it was a logistical nightmare just about every time. One overseas accountant refused to believe we had room for variation in the values we assign (i.e., that it wasn't just $X per square metre, which would effectively remove the need for a QS). Another client said he couldn't get a local QS to provide a historical cost. The list goes on.

 

it is very important to get legal advice prior to owning foreign property. have heard and seen many people lose a lot.

im well versed in the philippines and with capital growth of around 7 to 12% per annum per year for the past 5 years property has been an amazing investment. with gross rental yields around 8% much better than anything in australia.

however foreigners in the philippines cannot directly own land. they can own a condominium in the philippines where the overall ownership of the condominium corporation which owns the land is less than 40%. most reputable and large developers monitor that limit very closely.

so get legal advice on the country as many countries limit foreign ownership rights.

 

Its no different to our FIRB limits - Often worse. In some countries forfeiture can result and in some cases detention at airports etc can also occur if they suspect "crimes". Australia may only force a sale on a non-compliant buyer..

Just because you seem allowed to sign a contract doesnt mean the laws of the land allow it.

 

thats right paul in philippines some people have setup philippine companies with 60% filipino as shareholders and signed and undated share transfer documents. a breach of the anti dummy laws.

penalty. forfeiture of property and criminal charges.

 

Opposite of Like

 

Thanks Everyone, its very helpful.
I have done some research and it appears that the only 2 countries where tax depreciation is possible are the USA and UK.
Any one here know of others ?

 

With my US properties my US accountant prepares the depreciation schedule for all my properties. Not sure whether you could do the same ??

 

You do reports for investment propertie

Thanks MTR, how did your accountant work out the construction costs ? I am guessing the information is readily available in the US as you can claim building costs there.

 

I purchasing properties at that time at approximately $35K and perhaps $10K renovation, accountant worked on this info. Depreciation worth while it may reduce tax bill massively

It may be a good start to contact your accountant in the countries you mentioned if he/she cant help you perhaps they could guide you in the right direction

Any new properties I purchase much higher entry level but will also require renovation so will provide this info, to accountant that's about it.

Your right though can find out lots of info on the actual property ie year, structure, cost per sq ft, roof by just going to Zillow.

 

North Korea, Cuba, and the rest of the world - property located anywhere could be depreciated under australian tax law for resident tax payers.

The trouble is working out the amounts to claim

 

Investing in Philippines is no go then ?

 

as long as you look at condos and meet the 40% limits not an issue

 

If you are buying in overseas countries you will struggle to get a QS. However for Aus tax purposes you have a few options to determine building costs:

1)a quantity surveyor, who has expertise in the relevant type of construction;
2)a clerk of works, such as a project organiser for major building projects;
3) a supervising architect who approves payments at each stage in major projects and who may approve individual payments to subcontractors in smaller projects; or
4)a builder who is experienced in estimating construction costs of similar building projects. TR97/25

So you should be able to find somebody in these countries that satisfied this definition.