Q We are looking at purchasing an overseas aged care business membership from a company that has its head office in California. The business is not marketed in Australia as a franchise but as a membership which you can get out of anytime. Would there be GST payable on the purchase and how will profits be taxed.

A. As you will be investing overseas, and not selling a good or service overseas, you will not pay any Australian GST on the cost of the aged care business. You may however be liable for US state and federal taxes on the membership cost.

If you had instead been exporting goods or services to the US these would have been classed as GST free. When a business sells GST free goods and services they don't charge GST but get to claim back the GST they pay.

In this situation it often makes sense for businesses that exports all of their goods or services to register for monthly lodgement of their Business Activity Statement. This is because as they are not collecting GST, but will be paying GST on the majority of their costs, they will receive a refund each month that will help their cash flow.

The income you make from purchasing the aged care business in the US will be classed as foreign come. The expenses that you pay in relation to the aged care business must be claimed against the foreign income earned. These expenses will also include any expenses you pay here.

These expenses could include professional and accounting costs related to managing your investment. It will also include any interest paid on a loan you take out to fund the purchase of the investment.

Where the income exceeds the expenses this will be declared as net foreign income that will be added to your other income. If the expenses exceed the income the loss made will be shown as a foreign loss on your tax return. This loss can then be used to decrease your other taxable income.

Any costs paid in researching the investment, and legal costs paid in purchasing it, will be counted as capital costs and not deductible but will be used to reduce any capital gain on the sale of the investment.