Australian investors owning overseas properties can indeed claim depreciation, just like they would for domestic properties, provided the property is income-producing. Under Division 40 of the ITAA 1997, you can claim depreciation on plant and equipment, while Division 43 covers capital works deductions. However, the rules for claiming these deductions are governed by Australian tax laws, not the laws of the property's location.
To qualify for depreciation, the overseas property must generate assessable income in Australia. This means it's not enough to merely own a property overseas; it must be actively rented out or otherwise used to produce income. The depreciation you claim must be calculated based on the effective life of assets as determined by the ATO, not the local jurisdiction's standards.
A common misconception is that the construction date of an overseas property doesn't matter. In reality, the same rules apply as they do to Australian properties. For capital works deductions, the property must have been constructed after 16 September 1987. If the construction date is unknown, obtaining a detailed Quantity Surveyor's report is critical.
Take a practical example. Imagine you own a 2012-built two-bedroom apartment in Auckland, New Zealand, purchased for AUD $750,000. The property is rented out, generating an annual income of AUD $30,000. In the first year, you claim AUD $5,000 for Division 40 assets like appliances and AUD $8,000 for Division 43 capital works. At a marginal tax rate of 37%, this results in a tax saving of $4,810.
In our experience reviewing thousands of properties across Australia, investors often overlook the need to adjust depreciation schedules when exchange rates fluctuate. This can impact the Australian dollar value of overseas deductions. Another frequent oversight is failing to obtain a comprehensive depreciation schedule from a qualified Quantity Surveyor familiar with both Australian and international property markets.
The answer can differ depending on your situation. If the property was acquired before the 2017 budget changes, different rules may apply to Division 40 claims. Properties owned through a self-managed superannuation fund (SMSF) might have additional compliance requirements. Additionally, if you're a joint owner, the depreciation must be apportioned according to ownership percentages.
Given the complexities involved, getting professional advice is crucial. A Chartered Quantity Surveyor can ensure your depreciation schedule is accurate and compliant with Australian tax laws, while an accountant can advise on how these deductions affect your overall tax position.