FAQ

Here you will find common sense answers to the most common questions asked by our members. Answers are provided by the appropriate expert in that area.

I want to make a donation to the Queensland Flood Relief Appeal, is it tax deductable?

I want to make a donation to the Queensland Flood Relief Appeal, is it tax deductable?

I am pleased to hear that you have opened your heart and wallet to this important cause.  It never ceases to amaze me just how powerful Mother Nature is and how helpless we truly are when we are exposed to it wrath.

Be it the Australian Tsunami of 2006, the Victorian Bushfires of 2009 or the current misfortune of the Queensland Floods, we are reminded how fragile we are and how things can change so very quickly.

I am also inspired that out of these tragic events we always see the best part of humanity.  Our ability to cope with adversity, overcome misfortune, rebuild, recover and, most importantly, our willingness to help our fellow man.

The Australian Government, like almost every other Government, recognises the importance that donation and charity play in the modern world and as such any contribution to an Australian registered charity is a allowed as a tax deduction against your Australian income tax in the financial year that the payment is made.

This is a sign of recognition of the importance of the act as well as a manner of appreciation for the jesture.

You should note however that in order to claim a donation you need to have a taxable income in order to offset it against.

For many Australians living overseas, it is unlikely that you will in fact have any taxable income as your offshore salary is not taxed in Australia.

If you have an Australian rental property with a sensible level of finance on it, then you may also find that you are in a tax loss position each year with no tax payable in Australia and some tax benefit carrying forward into the future.

If this is the case then making a donation to any charity will not improve your Australian tax position as donations can not increase any tax loss position and therefor are essentially ignored once you have an income less than zero in your tax year.

If you have Australian rental property that is generating more income than the ownership expenses, including interest and depreciation, then the donation would be able to be used to reduce your net rental income and lower your annual tax liability.

To claim the deduction in the current financial year, the donation needs to be paid and cleared by the 30th June, Australia’s financial year end, and a receipt should be obtained and kept as proof of payment.

Regardless of your position, either being able to claim the deduction or not, the decision to make the donation should not be one based upon the ability to offset tax, rather it should be on the importance of the contribution.

Many of us living overseas are fortunate to experience more favourable circumstances than we expected, so it is seems fair to lend a helping hand to those less fortunate, especially when their position has come about from events that were totally out of their control.

I would hope we can all dig a bit deeper to help those that need it the most.

I have some shares in the UK, will they be taxable if I move to Australia?

I have some shares in the UK, will they be taxable if I move to Australia?

The Australian tax system is an all encompassing one.  Once you permanently relocate to Australia and become a tax resident then all of your income and capital gains from assets held both in and out of Australia will be taxable.

There are concessions for people that move on Temporary Visas to exclude overseas assets from being taxable, but this only applies while you are on the Temporary Visa.

Assuming you have a Permanent Visa, although he shares or other assets may become taxable there are some rules that ensure a level of fairness for you.

  • Any profits made prior to your arrival in Australia are not taxable.  Under the Australian rules your overseas assets are deemed to be acquired at the market value on your date of arrival to live permanently in Australia, so if that is higher than the original profit then it will soften the future Australian tax.
  • If you sell your shares after being in Australia more than 12 months, then half of any capital gains made above the market value on arrival will be free of tax.  This makes it very worthwhile to wait the year prior to selling any of your assets, especially if the value has increased substantially.
  • If you leave Australia within 5 years of your original migration and return to live overseas then any assets you had prior to your arrival are ignored for tax purposes provided they are sold after your departure, not during the time you lived in Australia.

You should be mindful that when you are living in Australia as a permanent resident, the sale of offshore assets is taxable even if the money is not brought down to Australia.  The transaction is taxable as a result of the sale, not the movement of funds to Australia.

Many people think it is best to sell offshore assets prior to migrating to Australia but this is not true.  Given that you only pay tax on future profits the only reason to sell should be a financial one, that is you are not confident in the assets future growth potential or you have a better use for the funds, such as buying your Australian residence.

The relocation is a good time to review your asset holdings and ensure they are performing satisfactorily and easy to manage from your new Australian home.

It may be appropriate to look at the ownership of your assets and consider the use of tax effective structures like Family or Discretionary Trusts, as it may be appropriate to shift ownership into such a structure, although you need to consider the UK tax consequences and transfer costs.  A professional Australian Tax advisor can quickly evaluate the merit of this.

In the modern world, you should be aware of the great information gathering powers of tax departments.  It is extremely likely that your offshore assets will be discovered so the option of “forgetting to mention” your overseas holdings is fraught with danger.

In truth, full disclosure combined with sensible tax planning can soften, or indeed eliminate, any potential tax issues in Australia, so your best option is to become aware of your tax position and plan accordingly.

We have a holiday home in Australia, do we have to pay tax on it?

We have a holiday home in Australia, do we have to pay tax on it?

In the modern era it is becoming increasingly common for people to keep a holiday home in Australia and visit it for extended stays during the year.

If you have purchased a home in Australia and you have decided not to relocate permanently then you will still be considered a non resident for tax purposes and will remain so until you chose to have a more permanent presence.

As a non resident, your worldwide income is not subject to tax in Australia, only Australian sourced income such as wages while living there or rental or capital gains on an Australian property.

If you have a holiday home that you do not rent out during periods when you are not using it, then there are no income tax requirements for you and you will not be required to lodge an Australian income tax return unless you do some paid employment during your stay in Australia.

You will however be subject to capital gains tax on the eventual sale of the property if you make a profit over cost of purchase, acquisition costs, any paid improvements to the property and selling costs.  If you have owned the property more than 12 months half of any net capital gain will be free of tax, the balance subject to normal marginal rates with the opportunity to do some effective tax planning to keep this to a minimum.

If the property is rented out in your absence, then you must lodge an annual income tax return each year declaring the rent received.  You will be allowed to deduct all expenses of ownership including maintenance, rates, electricity and interest on loans.

The expenses need to be reduced on a pro rata basis to remove the period of time that you kept the property for your own personal use.

You are entitled to claim costs relating to the property during periods of vacancy provided that it was “available for rent”.  That would need to be evidenced by such things as a formal listing with a property manager, advertisements stating the property was available and appropriate communication showing evidence that you tried to find tenants.

The rental system is well established to cater for short term lets, so you will find good support should you choose this option and it can ensure the financial cost of the property is kept to a minimum and maybe even turn a profit.

If you intend to keep the property just for your own personal use, it is usually best to have no mortgage on the property as you would want to minimise the cost of ownership.  That does not mean you need to leave the capital idol, as it can be used as collateral for further investment decisions including Australian property or other prudent investment options.

Using the equity in your holiday home to acquire an additional Australian investment property that is rented on an ongoing basis, can prove very tax effective as proper planning in this way can protect against potential capital gains tax on the sale of either property.

This needs to be done with due consideration and a clear understanding of the financial and tax implications, so it would be wise to seek professional advice to ensure you make the best decisions to suit your circumstances and maximise the benefits of your Australian property choices.

What sort of fees do I have on my Australian property loan?

What sort of fees do I have on my Australian property loan?

Australian property finance is a well establish, competitive and highly regulated activity.

As such, the costs involved are very reasonable when arranging your loan.  Costs would be split between the set up fees and the ongoing loan.

Loan Set Up

Typically there is an Establishment fee or Application fee when your loan is approved with a bank.   This is typically between A$300 to A$750.  At various times some bank offer incentives and reduce this if you are lucky.

Most banks do not require this to be paid until they have assessed your application and have confirmed their willingness to provide the loan.

This is true for both a formal application and also if you are seeking a pre approval prior to purchase.

If you use a Licenced Finance Broker, such as Specialist Mortgage, you should not be charged a brokerage fee, as the bank would normally remunerate the broker and therefor there is no need for any additional direct charge by the broker.  At Specialist Mortgage we do not charge any brokerage fees to our clients.

When the loan is approved and progresses to draw down, there will be additional costs such as loan documentation, property valuation fee and settlement attendance fees.  These are usually very modest and in many cases included in the application fee.

Under Australian lending regulations, the bank is required to clearly detail all potential costs when they make the loan offer so there should be no surprises for you.

Ongoing Fees

Many banks offer special packages that include discounted interest rates.  It may be that an annual bank fee is charged for you to obtain this, and is worth considering as it may lead to substantial savings.  Once again, the bank is required to advise you of all potential ongoing fees on the loan, including monthly charges and statement fees, in advance.

When we review your lending options we compare all the interest and fee options available to you between the banks and find the one that is best suited to your circumstances.

Click here for more informaiton on Australian Property Finance

I was thinking about buying a property in Australia but I am put off by the strong Australian dollar. Is it worth waiting for the dollar to weaken?

I was thinking about buying a property in Australia but I am put off by the strong Australian dollar. Is it worth waiting for the dollar to weaken?

When it comes to investment it is easy to find an excuse to delay a decision as there is always one to be found.  Market bubbles, interest rates and indeed currency are popular reasons to delay rather than act but many people don’t realize the cost of procrastinating when it comes to Australian property is more than they think.

From a taxation perspective, the many incentives on offer to reduce future tax on your Australian salary when you return to Australia require as much time as possible to accrue in order to achieve the best result so you do weaken your future taxation position, albeit not significantly if your delay is short lived.

From an investment perspective, the Australian property market continues to achieve sound and stable growth, so delaying the entry decision can prove more costly than any potential currency cost.

Many people are not aware of the fact that quality lending can act as a natural currency hedge by allowing you to minimize the deposit required and only be exposed to the high currency cost on the funds required to purchase rather than the full purchase value.

When using sensible lending, your cash outlay would be limited to your 20% deposit plus approximately 5% allowance for costs such as stamp duty and legal fees.

Depending on your point of view where the currency might move to, or how much it may be “overvalued” it is important to find the reality of your delay decision.

This is best explained in an example.  Let’s assume you are looking to purchase a property in Australia for A$500,000 of which you would require 25% for deposit and costs to acquire, the balance coming from an Australian dollar loan.

If you feel the Australian dollar is overvalued by say 10% at the moment and would improve that much in the next 12 months, then the “additional cost” of acting now would be 10% of the cash required of A$125,000, being A$12,500.  So if you waited the year for the currency to improve (assuming it does) then you would be better off by A$12,500.

However, if the property you are looking at grows by the average rate of 7%pa over the next year that can be more expensive.  The reason being is that it is calculated on the total purchase price, so a A$500,000 property would be worth A$35,000 more in 12 months if it achieves this average growth.

Hence the net cost of delay is the potential increase in property value, A$35,000, less the assumed currency cost, A$12,500, being a net A$22,500 which is a cost of delay if you wait, or if you were brave enough to act is a extra profit to you.

Many people don’t factor this cost in when assessing the merit of action or delay and find out too late the real cost of delay is far greater than the potential currency loss.

You can then make the additional reductions of the loan later when you feel the Australian dollar has better value.

If you already have an Australian property that has some available equity, this can provide a full hedge on your next purchase as the deposit can also be borrowed against your current property holdings, hence ensuring that you do not need to convert any currency and experience no potential currency cost due to the high Australian dollar.

I am moving back to Australia soon and intend on living in my property before I sell it, how long do I have to live in it so that it becomes tax free?

I am moving back to Australia soon and intend on living in my property before I sell it, how long do I have to live in it so that it becomes tax free?

Under Australian Capital Gains Tax rules, the family home (referred to as the Principal Place of Residence) is free of Capital Gains Tax.

It is a common misconception that if you have a property that was not your residence and had been rented out, that if you move into it for a period it can become tax free under the PPR rules.

This is completely not true, regardless of how long you may actually live in the property in later years.  Instead, the tax free status is allowed on a pro rata basis, so for the period of time it was actually your home that portion is tax free but the rented period remains taxable regardless.

For example if you own a property and rent it out for 4 years then move back in for 1 year prior to selling, only 1/5th of any gain would be tax free while the remainder would be taxable. Importantly you would still be entitled to the normal half tax free allowance on the taxable portion once I have owned the property for more than 12 months, which in this case had occurred.

There is no minimum time to what constitutes living in the property, however you should genuinely have it as your home and this would be evidenced by such things as electrical accounts, removalists invoices, licence address and electoral roll address.

There may be some further concessions available to this rule is if you had lived in the property prior to moving abroad or renting it out, in which case there are some special rules that treat the property as if it has remained your home for up to six years, even though it was actually rented during this period.

In these situations, you are meant to obtain a valuation when you originally moved out, and that valuation amount becomes your new cost base for tax purposes.  Therefore any capital gains from the original purchase price up to the new valuation will remain tax free.

If the property is sold within the six years then no tax is applicable.

If sold after the six years after moving out, then it will be pro rata from the time of leaving to time of sale.  This may be minor, so you should not sell just to protect against potential tax issues.

Importantly, you must have actually lived in the property while being a resident for Australian tax purposes, so you can’t nominate the property as your home unless you had physically lived in it.

If you move back in to the property then it will increase the pro rata tax free period even further.

Notwithstanding that there may be tax issues that may not be welcomed there are many ways to protect against the Capital Gains Tax through sensible planning while living abroad including further acquisition and debt management.

You should not be afraid of the effect of Capital Gains Tax as rates of tax in Australia have reduced significantly over the recent past so even the full tax cost may be far less than you thought it might be, but obviously if you can legally reduce the potential cost, then this should be investigated and considered.

I have recently received a letter from the Australian Tax Office threatening to tax my foreign income. What should I do?

I have recently received a letter from the Australian Tax Office threatening to tax my foreign income. What should I do?

In July 2009 the Rudd Labour Government changed the way foreign incomes were taxable for Australian Resident taxpayers.

Under the old rules, if an Australian worked abroad for more than 90 days and paid tax in the country of earning, then it was treated as exempt income in Australia and no tax would be charged on this.  Under the new rules, it is fully taxed in Australia and a credit is allowed for any tax paid in the country of earning.

Importantly, these rules only apply to Australian resident taxpayers, which is those living in Australia and just travelling temporarily overseas for work.

Recently, the Australian Taxation Office has increased its Audit activity in this area and is sending letters to many Australians working abroad.

These letters are actually soft Audits to check on the accuracy of the return.  The standard letter that has been sent to many is very confusing and suggests that the ATO has “decided” that a persons residency status has been found to be as a “resident” and hence all offshore income should be included as taxable.

This is an very bad practise, designed to try and ensure that the recipient responds with urgency to the request by making the alternative of inaction very costly.

It is essential to understand that this is not the correct treatment for those living legitimately overseas with a long term intention, so if you receive a letter from the tax office similar to these you must:

Act quickly to make initial contact with the Taxation Office, preferably through your Australian Tax Agent.

Make it clear that you are indeed a Non Resident for tax purposes and therefore your Foreign Income is not taxable in Australia and there is no need to alter past returns lodged.

You will be asked to submit a Residency Questionnaire to confirm this, which should be duly competed and returned.

Once this has been attended to then the matter will be concluded in your favour.

If you do not respond to the Questionnaire, you run the risk of the ATO issuing an amended assessment which will include any income they are aware of (including transfers back to Australia) and a sizeable tax and penalty bill may arise.  This can be disputed, but it will be a long and troublesome issue which could have been avoided by responding originally.

Surprisingly, the ATO is quite easy to deal with on these matters provided you remain attentive, co-operative and polite so ensure you do not feel threatened by the difficult, but required, administrative process.

If you have any doubt about your situation or concerns, make contact with your advisor or contact our office and we will be pleased to assist you gain a full understanding.

We intend to migrate to Australia and considering buying a home there before we leave, are we allowed to do this ?

We intend to migrate to Australia and considering buying a home there before we leave, are we allowed to do this ?

Buying a home prior to your migration to Australia is always a good idea and may in fact create some significant tax advantages prior to your arrival.

Under Australian foreign investment laws, the only restriction for foreign investors acquiring property in Australia is that they must buy a newly built property or land provided that construction begins within 24 months.

It is not done as a deterrent, rather it is to keep our property market safe and ensure foreign investment creates jobs and increases the rental pool.

If you have already been granted an Australian Permanent Residency Visa, then this restriction does not apply and you can acquire property whether new or established.

If you are married to an Australian Citizen or permanent resident, you can also acquire established property provided it is acquired as joint tenants with your spouse.  This includes defacto relationships.

Purchasing a property prior to arrival may also be very beneficial in some other important areas:

  • It can protect against future Australian income tax on arrival as any holding cost on the property (rent less interest and expenses) is allow to accumulate as a tax deduction indefinitely.  As such you can build up a sensible level of tax losses prior to arrival that can offset any Australian income tax on salary, investment or retirement income once you relocate.
  • It may be easier to arrange financing prior to relocation while you are still gainfully employed rather than waiting until you have moved to Australia.  This may make a better home even more accessible with finance readily available for up to 80% of any purchase price for non residents acquiring Australian property.
  • You get to acquire the property at todays price rather than tomorrow.  Australian property markets have proved their stability over many decades, so prices of property tend to hold firm and grow at a reasonable pace.  The decision to delay purchase can make the eventual price of your home higher and increase the burden of loan that may be required.  The earlier you acquire, the least cost is most likely.

Depending on your time horizon for relocation, acquiring a property that would suit your living requirements is a very wise decision and even if you may change your mind and chose to live elsewhere, it will stand as a safe and sensible investment decision that can be kept and continued to be let out, or sold to help pay for your new intended residence.

We are getting ready to move down to Australia and I will be transferring some money there shortly.  How much tax will I have to pay on that?

We are getting ready to move down to Australia and I will be transferring some money there shortly. How much tax will I have to pay on that?

Many people wrongly believe that they will be taxed on any money they send to Australia, but this is not the case.

You can freely send money to and from Australia without any tax consequences in Australia whatsoever.

Once you begin living in Australia you will likely be subject to worldwide tax, however this will not be on the original amount you had in savings or cash, only on any interest that may have been earned on it after the date you have formally relocated yourself and family to Australia.

Even if you send the money down for family members, it will not be taxable to them as long as it is not payment for some service or employment.  Simply gifting them or loaning them money is not a taxable activity.

If you continue to live overseas for some time, then any interest earned in Australia will only be subject to a 10% Withholding Tax.

Once you move to Australia, there is no obligation to close the bank accounts you have in your country of origin, so you can keep them open and leave funds there if you so choose.  You will just be required to declare any interest earnings on the accounts each year.

Many people mistake the need to declare cash taken to Australia with some sort of taxation consequence.  The Cash Transactions Reporting rules require any one leaving or entering Australia with more than A$10,000 equivalent in cash to declare it at the airport.

This is more for anti terrorism, money laundering and anti crime than for tax evasion.

In fact, you can legally bring in much more cash than the declaration amount, as long as you can show a legitimate source for the money, such as closing a bank account or proof of an official withdrawl.

If the amount is electronically transferred to Australia, rather than sent in cash, then there is no restriction on the amount sent, as anti terrorism measures have already been taken by the sending bank or institution to verify your identity in accordance with international convention.

The Australian tax laws are surprisingly favourable for incoming migrants and you should not be fearful of any potential impact on your savings.  This does not mean you can be complacent, and it is advisable to gain a suitable level of understanding of your obligations in order to ensure you legally keep your taxes to a reasonable level.

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All information provided is of a general nature only and does not take into account your personal financial circumstances or objectives. Before making a decision on the basis of this material, you need to consider, with or without the assistance of a financial adviser, whether the material is appropriate in light of your individual needs and circumstances. This information does not constitute a recommendation to invest in or take out any of the products or services provided by SMATS Services (Australia) Pty Ltd or any of it's related entities.