Tax liability of daughter working in Australia

My daughter is Irish and worked in Ireland for about 10 years before emigrating to Australia in October 2012, where she is now in employment and pays Australian income tax.

She plans to return to Ireland in the next three years.

She owns and rents an apartment in Dublin, which is in negative equity and which does not generate any taxable income. She remits monies to Ireland to fund the shortfall between her mortgage repayments and her rental income. She has not and does not intend to visit Ireland for more than a few weeks in any year while working in Australia.

Can you please advise on her tax status in Ireland during her time in Australia. Is she liable to Irish income tax on earnings in Australia or on remittances to Ireland and must she complete an Irish tax return during her stay in Australia? Also, what will be her position when she returns to Ireland and begins to work here again?

Mr GD, email

The Irish tax code is built around concepts of domicile, tax residence and ordinary residence. They are detailed and can be confusing. Things get even more muddled when you are working abroad as that country, not surprisingly, generally feels entitled to tax you on income earned within its borders.

To compound things, there are then a series of bilateral double taxation treaties between countries. These are designed to manage conflicts when it appears that two different jurisdictions are seeking to tax the same income (or other asset).

To be fair, these agreements are very useful to an increasingly mobile workforce, but they are certainly not meant for easy reading.

Your daughter’s position is that as someone domiciled here (seeing this country as her permanent home) and ordinarily tax-resident here (having paid income tax on earning here for three successive years), she is deemed to be liable for tax in this country on her worldwide earnings.

That clearly conflicts with the Australian authorities’ view that even as a non-resident, she is liable to Australian income tax on her earnings over there.

The solution is in a provision in Irish law that states that even Irish-domiciled individuals are not liable to tax in Ireland on income from a trade or profession or employment carried out entirely outside Ireland.

Your daughter is paying tax on her Australian earnings in Australia and is fully compliant in doing so. When she returns to Ireland, she will again become liable to Irish income tax on any income arising here.

The one complicating factor for your daughter is her property. Regardless of where she is based, Irish tax law and the double-taxation accord with Australia state that she is liable in this country for any tax due on rental income from an Irish property. Essentially property is taxed in the country where it is located rather than where the owner is located.

You point out that the property is in negative equity and that the rental income does not even meet the mortgage payments. Unfortunately, that is not a deciding factor. The issue is that there is rental income and, subject to certain deductions, this is liable to income tax in Ireland, for which she will have to file a return.

In relation to those deductions, one of the more important ones is that your daughter will be entitled to relief against her rental income for 75 per cent of the interest on her mortgage loan. If some of the loan was used to meet stamp duty, legal fees or other “extras”, interest on that portion of the loan is excluded. Only interest on money borrowed for the actual purchase price is covered.

If she is not registered with the Private Residential Tenancies Board (PRTB), she will not be granted relief on mortgage interest. That aside, she is legally obliged to be registered with the PRTB.

That aside, maintenance, repair and insurance costs for the property incurred by your daughter can be set against rental income as can any costs for supplying services – eg phone, waste, electricity – that your daughter’s tenant is not contracted to pay.

Costs incurred in letting the property – legal, estate agents etc – or in managing it – ie collecting rents and managing repairs on your behalf, are also valid claims against rental income.

Gifting the family home to a 'child' I have a follow-up question on gifting the family home to an adult child.

If the “child” in question has sold his/her home, and moved into the parental home in order to take care of elderly parents, but owns a holiday home abroad, does this make any such “gift” impossible?

What if the holiday home is owned by a spouse of the person being gifted the home?

Mr JM, Dublin

You are referring to the exemption in the capital acquisitions tax code on family homes that covers people who own no property and necessarily live with their parents for the three years before the gift is received and live there for six years beyond that date.

My understanding is that such a person would not qualify. The legislation excludes people who own, or have an interest in, another property. That would appear to exclude anyone owning a holiday home. As a married couple, they would presumably have an interest in such a property, even if it were nominally in the name of their spouse.

On the issue of selling a home to move in with parents, Revenue would certainly want to be satisfied that any such move was predicated purely on the needs of the parents for such care – rather than simply the choice of a child to do so. Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.