Australian couple with a French rental property — undeclared income in their home country for five years

The situation

Our clients were an Australian couple in their early sixties who had owned a farmhouse in the Luberon for eleven years. For the past five, they had been letting the property during summer months through a local agency, generating approximately €22,000 per year in gross rental income. They had engaged a French accountant to file their annual French income tax return and had been doing so correctly each year.

The issue came to light during a conversation with their Australian financial planner, who raised the question of whether the French income had been declared in Australia. It had not.

The challenge

Australia taxes its residents on worldwide income. The French rental income was assessable in Australia in each of the five years. The couple faced a potential underpayment position, together with interest and administrative penalties. The question was how to address this in a way that minimised exposure and brought the position into compliance.

Our approach

We reviewed the French returns for each year and confirmed the income and tax paid. We then introduced the couple to an Australian registered tax agent in our network with specific experience in cross-border property matters. The adviser prepared five years of amended Australian returns, applying the French income tax credit in each year in accordance with the Australia-France double tax treaty. Because the French tax rate on net profit was broadly comparable to the Australian marginal rate, the additional Australian tax after credits was modest in most years.

A voluntary disclosure was lodged with the ATO. Voluntary disclosure prior to ATO contact significantly reduces penalty exposure. The penalty applied was substantially lower than would have applied had the matter been identified through an ATO review.

The outcome

All five years were brought into compliance. The combined additional Australian tax, interest, and reduced penalty across the five-year period was manageable. Going forward, the couple's Australian returns are filed annually alongside the French return, with the credit applied as a matter of course.