Do Australians pay tax twice on Bali property?

Australians are the largest group of foreign buyers in Bali, and the tax interaction is the part most consistently left until after the purchase.

The basic position

Australia taxes residents on worldwide income. If you are an Australian tax resident, your Bali rental income is assessable in Australia, regardless of where it was earned, where it was paid or which account received it.

Indonesia taxes it first. The Australia–Indonesia treaty follows the standard principle: income from immovable property may be taxed in the country where the property is located. Indonesia applies a final tax of ten percent for an Indonesian tax resident individual or twenty percent for a non-resident, on gross rental income.

Australia then gives credit through the foreign income tax offset, for Indonesian tax paid on that income.

Why relief does not eliminate the tax

The foreign income tax offset is capped at the Australian tax attributable to that foreign income.

So if the Australian liability on your Bali rental profit exceeds the Indonesian tax paid, you pay the difference in Australia. Given Australian marginal rates and Indonesia's low final tax, that is the usual outcome.

There is a further complication that catches people. Indonesia's ten or twenty percent is a final tax on gross rental income. Australia taxes net rental profit after deductible expenses. You are comparing tax on two different bases, and the offset is calculated against the Australian figure.

In a year of heavy expenses, the Australian assessable profit can be small while the Indonesian tax on gross was substantial, and the excess offset is generally not refundable or carried forward.

Capital gains

Australian CGT applies to the disposal of foreign real property by an Australian resident, on the gain calculated under Australian rules, with the CGT discount available where the holding period qualifies.

Indonesia applies a final tax of 2.5 percent of the transfer value rather than taxing the gain. Credit is available for that against the Australian liability, and because the Indonesian amount is small relative to a gain-based Australian assessment, the balance generally falls in Australia.

Note a mismatch worth planning around: Indonesia taxes the sale value even where you made a loss. Australia taxes the gain. You can pay Indonesian tax on a loss-making sale and have no Australian liability to credit it against.

Leaseholds and the cost base

Australian CGT applies to the asset you actually hold, which for most Bali buyers is a leasehold interest rather than land.

The cost base, the timing of acquisition and disposal, and the treatment of an assignment of the remaining term are all technical questions. Anyone who agreed to declare a lower purchase value in Indonesia to reduce transaction tax has also created a record that does not match what they actually paid, which is unhelpful when establishing an Australian cost base.

Structures

Holding through a PT PMA introduces Australian rules on controlled foreign companies, which can attribute the company's income to you whether or not it is distributed.

This is genuinely specialist territory and it is frequently set up in Indonesia by advisers with no visibility of the Australian consequences. Get Australian advice before forming a structure, not after.

Residency, which decides everything

If you cease to be an Australian tax resident, the analysis changes fundamentally — and Australian tax residency is a substantive test of where you live, your family and economic ties, and your intentions. Spending time in Bali while keeping a home, family and business in Australia does not achieve it.

Australia also has deemed disposal rules on ceasing residency for certain assets, which is an event to plan around rather than discover.

What to actually do

Declare the income. CRS automatic exchange of financial account information covers Indonesia, so foreign accounts and balances are visible to the ATO. The era of practical invisibility has ended.

Keep records in both currencies, with exchange rates at the relevant times, and evidence of Indonesian tax paid.

Obtain a residence certificate where you are claiming a treaty rate in Indonesia, at the right time.

Get Australian advice before buying, particularly on structure. The cost is small against the consequences of getting it wrong, and almost everything is easier to arrange than to unwind.