If we rent out our apartment abroad, where do we pay tax?

Question:

My wife and I own an apartment in Brisbane. We are moving back to Ireland in September and are considering keeping the apartment to rent out, as the rental income would be very good and would go some way to compensating for the dip we will both take in salary. Would we be taxed on the rental income in Australia, or Ireland, or both?

Answer: Barry Flanagan, director, taxback.com

The short answer is that while it is likely this income (or profit) will be taxable in both jurisdictions, relief from double taxation should be available to reduce the tax burden.

Irish Position Assuming that you are ordinarily resident in Ireland or will become tax resident again on return to Ireland, the profits (computed from an Irish perspective) from renting a foreign property will be taxable in Ireland.

Irish resident and domiciled individuals are taxable on their worldwide income in Ireland, regardless of source.

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Australian Position Rental income from Australia remains taxable there for the duration that the property is rented out, regardless of whether the taxpayers are residents or non-residents for tax purposes there.

However, you should be able to limit your taxability in Australia to just income from Australian sources (as opposed to worldwide income), if you can demonstrate that you are no longer tax resident there.

The key point would be if you keep your connections with Australia after your departure. If you can demonstrate non-resident behaviour, and the rental income is the only thing that connects you to Australia, you will be considered to be non-residents for tax purposes and therefore will not be taxable on your worldwide income along with the rental income (which remains taxable at resident or non-resident rates, depending on circumstances).

If, however, you are deemed to still be resident in Australia for any reason, along with this rental income, you will have to pay tax on their worldwide income as well (with appropriate allowable tax credits of course).

"Double Tax" Relief Given the likelihood that this income will be taxable in both jurisdictions, we should consult the Ireland/Australia double tax treaty to determine whether the charge is excluded or relieved in either jurisdiction. Article 7 deals with income from "Real property" and confirms that it may be taxed in the state which it is situated, i.e. Australia, it does not state that it may only be taxed in that state. Therefore, if a charge to tax exists under domestic legislation in Ireland, it is not excluded. However, it will be relieved by means of a Foreign tax Credit for the Australian tax paid, which may be taken as a credit here.

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