Coming clean, an overseas property owner

Question:  

I live in the United States. In 2005, I bought a property in Australia and rented it out, but I have not lodged Australian income tax returns since then. I still own the property. I want to clean up my whole Australian tax position. I do not think I have much tax to pay because the property breaks even, makes a small surplus or is a loss.

What is the best way to engage with the Tax Office? How do I minimise penalties for late lodgement and interest charges? How do I draft and lodge tax returns from the early years?

Answer:

You should engage a tax agent to assist with preparing and lodging the income tax returns, managing the communications, and engaging with the Tax Office. The tax agent should prepare all the outstanding income tax returns and calculate outstanding taxes. You should pay all outstanding taxes and then authorise the tax agent to lodge the income tax returns.

After the taxes have been paid, the outstanding tax returns have been lodged, and the Tax Office has assessed any outstanding taxes, penalties or general interest charges, the tax agent can seek a remittance of penalties and interest charges. The Tax Office's attitude has hardened in recent months, and they may or may not grant such an application for remittance.

The issues in this paragraph are really a matter for your tax agent, but it is good for you to know as it will likely affect the costs and time taken for them to prepare your tax returns and for the Tax Office to process and respond to them. Some tax lodgement software systems provide for tax returns that date back to 2005, but not all do. If you do not have access to that software through your tax agent, they may need to draft manual, handwritten, or typed tax returns for the early years and send them to the Tax Office through the online systems available to them.

Explanation and finer points:

First, given the years outstanding, this is a somewhat complex matter, and you should seek the advice of a tax agent to bring your affairs into order. With them, you should seek specific advice, taking into account the details of your circumstances. If you are under pressure from the Tax Office, the tax agent can inform them that they have been engaged and seek some time for you to bring your affairs into order.

With this answer, we assume that you have not been a resident of Australia for tax purposes, having lived in the USA for the whole period since you bought the property in 2005.  We have also assumed that you have not sold that or other Australian real property and that this is your only Australian-sourced income. If that is incorrect, the answer is different, and your tax agent can advise you, as this approach may have adverse consequences.  

We assumed you have an Australian Tax File Number (TFN). If not, you will first need to apply for the Tax Office to issue a TFN; confirming your identity may be complex.

Have you included the income from the property in the reporting for your USA tax affairs? If not, you should also engage a US tax professional to assist you with correcting that circumstance.

Do you have the property's income and expenditures from those years? If not, with the records that you do have, you may need to work with your tax agent to obtain the documents or reasonably estimate the income and expenditures to prepare the tax returns.

Do you have records of the property's purchase? If you can recall who they were, the lawyer/conveyancer who assisted with the property purchase may have those records. When you sell the property, it will be necessary to calculate your capital gains tax. As you are a non-resident, no CGT discount is available. Also, as you purchased the property in 2005, tax deductions may be available for the depreciation of plant and equipment in the property and the construction cost. Your tax agent can obtain a quantity surveyor's report if those deductions are available.

Andrew Lovett

20 February 2025

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