Expat Property Investing

This is the sixth in the series of Majenda Insights. My name is Geoff Taylor. I’m a tax accountant and financial planner who’s looked after Australian expats for the last 20 years. And the topic I’m going to cover here is ‘Expat property investing’. This is where you’re overseas, living overseas, and you’re buying an Australian property. Before I go into the detail, this is just general advice. I haven’t taken into account your personal circumstances, goals, objectives or any of those things. It’s not personal advice. If you do need advice that’s personalised to your circumstances, I’d be happy to assist.

The reason for this video is I quite often get questions from expats around what do they need to be aware of when investing in Australian property. The first thing that you need to be aware of is that there’s state-based taxes and there’s also federal income tax. If we look at the state-based taxes, what used to be called stamp duty, and I think some states maybe still call it stamp duty, it’s effectively a land transfer tax. You need to determine what you will have to pay if you’re going to buy a property. There may also be a surcharge.

Some states have surcharges if you’re not an Australian citizen, and you’ve got to go and look at the specific definitions and requirements there to see whether you’re paying a surcharge or not. There’s also land tax. If you accumulate a number of properties in one state, you could be in a position of paying land tax. Some of my clients would deliberately buy properties in different states to stay under the land tax threshold. That’s the state tax regime.

The federal tax regime, we’re talking about income tax and capital gains tax. If you buy a property that’s situated in Australia and you’re a foreign resident, it will be called taxable Australian property. And there’s no way of avoiding Australian tax on it. Australia has taxing rights over property that is physically situated in Australia, including land. There are differences in the rates. You can find online the difference in the resident tax rates compared to the foreign resident tax rates. That’s a consideration. And foreign residents don’t get the CGT discount, which does apply to tax residents that have held a property for more than 12 months. This is what you need to be aware of.

In terms of tax optimisation, Australia still allows negative gearing. This is a consideration. What is negative gearing? Negative gearing is simply where the expenses are greater than the income. The expenses would include interest payments, outgoings, agent fees and letting fees, rates, those sorts of things. These expenses may be greater than the income earned. Now, the other thing is that if you talk to a tax accountant, they will quote you Division 43 and Division 40 because that’s what tax accountants do. One is a capital works deduction and the other is a plant and equipment deduction. And they apply at different rates. There are quantity surveying companies that will do a report for you.

If the property is relatively new, you can get a report that will give you all of the amounts that you can claim. It’s possible that you could have a property that is positively geared in terms of income, but negatively geared for tax purposes because of the depreciation allowances. That’s something if you would like to go and do a search, you can find information on Division 43 and Division 40, which I will also include below, and how they may benefit you. These are the sort of things that people look at.

Sometimes people ask me, well, if I go and live in a previous rental property, will that eliminate the capital gains tax? Can I get the main residence exemption and just wipe out a previous capital gain? And the answer is no. You can’t retrospectively eliminate a gain. Prospectively, yes, you could go and live in one of your rental properties and gain the benefit of the main residence exemption in the future. There’s obviously a dividing line between the tax rates and the tax rules as to whether you’re a foreign resident or resident. And if you want to know how that works, I’m happy to take you through.

And in fact, you may well want advice on whether it’s better to sell a property while you’re non-resident or while you’re resident. And often we do those calculations that might be of interest to you. The idea here was just to give you a quick heads-up on the key things that you need to be aware of. If you would like to set up a Zoom call or a Teams call, I’m happy to do so. Just let me know and book a time. And I look forward to seeing you in the near future.