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 have recently been granted a Permanent Resident Visa for Australia and will be going down to activate it shortly. Will this mean I have to start paying tax in Australia?

I have recently been granted a Permanent Resident Visa for Australia and will be going down to activate it shortly. Will this mean I have to start paying tax in Australia?

Australia does have strong international tax rules that require anyone living in Australia to declare and pay tax on their worldwide income and capital gains.

Unlike places like the United Kingdom, where a lot of the tax Domicile rules are centred on where you are a citizen, the Australian tax rules have a more practical approach.

For Australian Tax purposes, we have a Resident and Non Resident Status that centres around the physicality of your person in determining the tax treatment.

A Resident is simply someone that “ordinarily resides” in Australia and requires you to be living on a permanent basis in Australia.

When you are granted a Permanent Residence Visa, this does not trigger off any taxation consequences at all, so the mere task of visiting Australia to complete formalities will not mean that you begin paying Australian taxation provided it is just a temporary stay for that purpose or a short holiday.

Only if you decided to physically move your family and belongings permanently to Australia, would you then start to become a resident taxpayer.  This would be evidenced by packing your belongings and shipping them down, relocating the kids schooling, obtaining a job and moving out of your home in the United Kingdom.

All of these acts are a clear indication that you have moved permanently to Australia to start a new life and would mean that you are now taxable on worldwide income.

There are many concessions to start you off as a resident taxpayer including the fact that all income and assets up to the date of arrival are non taxable in Australia, but you should seek professional assistance to gain a full understanding of your situation.

There are also some special rules for people living in Australia on Temporary Visa’s that can ensure no tax is payable on worldwide income even if they are living in Australia on a full time basis.

If you simply are on a short term visit to satisfy the Visa requirements or a holiday, then you would remain a Non Resident for Australian Tax purposes which would mean that your worldwide income would be completely ignored.  Only Australian property rental and Australian sourced wages would be subject to taxation.

Interest earnings, share dividends and capital gains are not subject to taxation in Australia for Non Residents.

Once you have your approved Permanent Visa stamped you usually have up to five years to relocate to Australia, and it would not be until the actual relocation that tax implications would begin.

This may give you time to plan effectively for your subsequent arrival.

I have a property in Australia in just my name and I want to give half to my new wife. Is there any problem doing this?

I have a property in Australia in just my name and I want to give half to my new wife. Is there any problem doing this?

In Australia there is no gift duty so the actual transfer of the value of a property from spouse to spouse does not attract a direct charge.  This is true even when you transfer to your children, relatives or even friends.

What you need to be careful about though, is the taxation and stamp duty issues.

Capital Gains Tax

Under our Federal Laws when an asset is transferred to another person for whatever reason.  Where the transfer is done to a relative for little or no consideration, the law provides that a taxable sale has occurred at the market value of the asset regardless of what is paid.

So if you do transfer property to your wife (or family) then you will be taxed as if it was sold normally.  This could be an expensive and unnecessary cost.

There is an exception if the property is the family home at the time of transfer and is transferred from spouse to spouse.  This effectively eliminates the Capital Gains Tax on the transfer that would otherwise have been payable.

Note this is only if you are living in the house at the time and relates to the transfer of up to one half from the sole holder to their spouse, so the only time it is sensible to transfer a share of the property to your spouse is when you are actually living in it.

Stamp Duty

Each State of Australia levies a transaction charge, referred to as Stamp Duty, on the transfer of property.

This includes real estate transfers and there is usually a fee of 2-6% of the value of the transaction.  Similar to the Federal Capital Gains Tax, this will be levied at the market value for related parties regardless of the amount of the actual transaction.

All states have a similar exemption from duty available when transferring from one spouse to the other, some even allowing a 100% share to be transferred, and they usually require the property to be the main residence at the time however some States do not require this to be a pre requisite.

You will need to have a solicitor or settlement agent handle the transfer and they should be able to confirm if any duty is payable in your situation.

You also need to remember to gain the approval of any lender that may have a mortgage on the property as they will need to give their consent and you will likely need to re apply for a new loan as the names will be changing from the original mortgagee which will incur additional costs and fees as well.

If you are considering transferring a portion of your property you should be sure to take professional advice as each case is different and may have inadvertent implications including the tax and stamp duty implications.  In the great majority of cases the transfer would be unnecessary and should not be undertaken until at least you are living in the property as your home to ensure the exemptions are available.

I recently sold some shares in Australia, do I have to pay tax on my profits?

I recently sold some shares in Australia, do I have to pay tax on my profits?

Under Australian Tax Laws, if you are a non resident for tax purposes (which basically means that you are living permanently out of Australia), then any profits made on publicly traded shares are not taxable at all.

This is great news for any expatriate, as you can use share investment as a means to build up a savings pool while you are overseas, completely free of Australian tax.

You need to be wary if you had owned the shares prior to your departure from Australia.  Under Capital Gains Tax rules, you are deemed to have disposed of your Australian investment assets at the market value on the date of departure.

This means that any profits, or losses, up to the time you left Australia need to be brought to account in the tax return in your year of departure. Once this is done, all future profits become tax free.

It is possible to make a deferral of any tax payable by a written declaration in that return electing to have capital gains tax on the eventual sale instead.  You should be cautious of doing this, as it will include the profit both while in Australia and the duration of time abroad.

In most cases this is not in your best interest, as having the ongoing profits free of tax is usually a preferred option.

However, if a substantial tax bill may arise, deferral can be wise if you are in fact able to build up some tax losses on your Australian property investments, which can then be used to offset the capital gain on the shares when eventually sold.Due analysis is required to establish the best option for you, as whichever option is chosen, it can not be changed later.

Regardless of which option you choose, any dividends you may receive after your date of departure are free of income tax.  If the dividend is “fully franked” then no tax issues occur.  If they are unfranked, then they may be subject to a Withholding Tax.

Franking simply means that the company has paid corporate income tax prior to declaring the dividend.

Saving during your time as an expatriate is essential, and having shares tax free in Australia may well be a further incentive to ensure that you wisely accrue capital whilst abroad.

I have heard I can claim my airfares back to Australia against my tax, is this true?

I have heard I can claim my airfares back to Australia against my tax, is this true?

The good news is the answer is “yes”, you can claim the cost of travelling to Australia against your tax if you collect rental on an Australian Property and make sure that at least part of the trip is spent inspecting the property.

Sadly, if you don’t have a property then you can not claim any of the expenses, similarly even if you do have a property you must actually visit your property in order to justify the claim.

If the primary purpose of the trip was for property related business, such as a tenant changeover, then you will be able to claim airfares in full and expenses for hotels, meals, car hire and associated costs for the number of days of property business activity.

Trips made to find or acquire a property can only offset future capital gains when the acquired property is eventually sold, but when you are already collecting rental then the trips are claimable against your annual income tax.

If the trip has dual purpose such as Christmas home, then you will be able to claim your airfares on a pro rata bases, for example if you do two days of property business on a ten day holiday, then 20% of your airfare and two days of hotel and meal costs will be able to be claimed.

You will only be able to claim expenses for the people who are on the title, so not your children.

In order to ensure you have no trouble with the Tax Office, you should keep a simple diary to confirm your activity, and keep receipts for your airfares and other expenses.

There is no maximum number of trips you can claim, as long as there is a genuine purpose to justify the trip then a claim can be made.

I am living out of Australia and have just started renting a property I own in Australia so understand I'll be liable for Australian tax.  Will the ATO calculate tax owed on a base income of my Australian rent earnings or on my overseas earnings?

I am living out of Australia and have just started renting a property I own in Australia so understand I'll be liable for Australian tax. Will the ATO calculate tax owed on a base income of my Australian rent earnings or on my overseas earnings?

Usually when you are genuinely living out of Australia for an indefinite or extended period, then you are considered Non Resident in Australia for tax purposes, regardless of the fact you may be a citizen. 

When this occurs, the only taxable activity is usually the rental property income and any earnings from services performed in Australia.  As such you do not need to declare your offshore earnings to the Australian Taxation Office.   

If you are only offshore on temporary assignment, you may still be classed as Resident for tax in Australia and then you would need to declare the offshore Income and get a credit for any Foreign Tax paid on it when calculating the Australian tax payable.  This only applies if you have a short term intent on your stay overseas, so you need to be clear on your long term plans. 

You are legally required to lodge a tax return in Australia each year and declare the rental income then deduct all of the expenses relating to the property such as interest, agent fees, maintenance, rates and even travel expenses for inspection.  Usually when all of these are deducted, there is a shortfall that can carry forward into future years to offset rental profits, capital gains on sale or even Australian salary when you eventually return to Australia. 

You may also qualify for special building write offs and depreciation allowances on the property that can further enhance the tax effectiveness. 

This makes Australian property investment very attractive for expats and should not be underestimated as a powerful planning option. 

If you choose to lodge the return yourself, the due date is 31st October each year, whereas if you have a Registered Tax Agent like myself prepare it, then you will have a time extension usually to the following April. 

Make sure that you do lodge your Australian return each year as the penalty is A$550 per year per person and you may lose out on the tax benefits you are rightfully entitled to.

I have just inherited a house in Australia, do I have to pay any inheritance tax or estate duty?

I have just inherited a house in Australia, do I have to pay any inheritance tax or estate duty?

You will be glad to know that Australia does not have any Inheritance Tax or Estate Duty so on that front there is nothing to pay.

You should however consider the possible implications for Capital Gains Tax as this may be imposed when you eventually sell the property.

Even though you live overseas, the property is subject to Capital Gains Tax upon sale.  When you receive the property through an estate, there is a “Cost Base” for tax purposes attached to it.

In calculating the cost base, it is necessary to consider what the property was used for prior to death.

If it was the persons primary residence (their home), then you are deemed to have acquired the property on the date of death at the true market value on that date.  When you subsequently sell the property, you will only have to declare profits above the market value.

In the same way, if the house had been purchased by the person prior to 20th September 1995, when Capital Gains Tax was introduced, then the same market value cost base will also apply.

If the property had been used as a rental or investment property, then it is treated differently.  You are deemed to acquire the property at the original cost, so in essence the capital gains tax liability up to that point is effectively transferred to you.

When you sell, the entire profit from the original purchase price is taxable at that time.

In all circumstances, once you have owned the property longer than 12 months, then half of any gain will be free of tax and therefore reduce the liability significantly.

You can also use any other accrued losses built up whilst overseas to reduce any tax exposure which may mean that it is a good time to review your circumstances in the event of an inheritance.

Remember to also include as income any rental that you may start to receive from the property in your annual income tax return in Australia.

I have heard there is a Land Tax on my property in Australia, do I have to pay it?

I have heard there is a Land Tax on my property in Australia, do I have to pay it?

For all owners of property in Australia, a Land Tax is imposed by the State Government in which the property is located.

Each state has different rates and rules as to how much and when the Land Tax is payable, they all have very good information on their respective State Government websites.

Land Tax is not part of your income tax, which is a Federal Government responsibility, and is an expense of property ownership rather than a levy against the rental.   Unlike income tax, which we can plan to eliminate, Land Tax can not be extinguished as it is based on the property value and is a annual levy.

Because it is an expense, you should always be mindful of the cost as it will soak up some of your rental and potentially add to your holding costs.

Each state offers an exemption for the house you live in, so many expats have not experienced a land tax bill previously, but if you have begun renting your home out during your time overseas then land tax will be payable.

Most states levy the Land Tax based upon the “Unimproved Value” of the property, the same method that is applied for your Council Rates, and a threshold is offered so that in many cases if you only have one or two properties, you may well find that you are under the taxable level and no amount is payable.

Because houses have a greater land component, they will attract a higher tax value than apartments.

In all states, the more property you own, the higher the land tax rate, so as you start to accumulate a property portfolio, the cost of land tax can escalate.  This may encourage you to look to have a property portfolio spread across Australia where you can benefit from the tax free threshold in each State.

If you have not been paying Land Tax, it is essential that you check and see if you should be as it is your responsibility and penalties will apply if you are found out.   Most states issue their Land Tax Notices Between November and March.

In all states, when you sell the property you are required to gain clearance for land tax before the final sale can be transacted.

We recently bought a house in Australia that we plan to move into on our return home.  If we sell it in the future, will we need to pay Capital Gains Tax for the years we lived outside Australia?

We recently bought a house in Australia that we plan to move into on our return home. If we sell it in the future, will we need to pay Capital Gains Tax for the years we lived outside Australia?

One common misconception amongst expatriates when it comes to Australian taxation, is what constitutes ‘the family home’ in order to be exempt from Capital Gains Tax (CGT).

Many people wrongly believe that they can move into their investment property for a period of time upon returning to Australia, and then claim it to be their residence and therefore non-taxable. This is simply not the case, CGT will always remain an issue that must be considered.

It is true that the Principal Residence is tax-free in Australia, but you should be aware that this only applies to those who are resident for tax purposes. If you are living abroad then this tax exemption cannot apply to you, if you are in fact a non-resident.

If you’re planning to buy a home in Australia that will one day become your residence, this home will be subject to CGT in the future for the proportionate period that the property was not your residence. Not renting the property does not help, it is still subject to CGT whether or not a tenant resides in the property.

For example, if you buy a house and rent it out for four years, then return to Australia and live in the house for six years before selling it, then CGT will be payable on 40 per cent of the capital growth – that is, four out of the ten years. This negative impact can be greatly reduced, or indeed eliminated, by your entitlement to 50 per cent exemption on the pro-rata amount after one year of ownership, and the ability to offset any tax credits built up over your time as an expatriate.

Some good news does apply if you lived in the house before you became an expatriate.  The tax office will continue to deem the property as your principal residence for up to six years – regardless of whether it is rented out or not – under the temporary cessation rules. If you are away longer than six years, then only the rent years after the first six will count towards the taxable pro-rata calculation.

I am keen to buy my first property in Australia, but I have heard that I need 20% deposit, it could take a while for me to do this, is there any other alternative?

I am keen to buy my first property in Australia, but I have heard that I need 20% deposit, it could take a while for me to do this, is there any other alternative?

It is not always easy to save up your deposit with all the many spending options available to you as an expatriate

The good news for you is that recently some banks in Australia have begun allowing Australian Expats and Overseas based Australian Citizens to borrow up to 90% of the purchase price of their Australian property.  You can call our office or visit our website to get more information on the banks that offer this facility.

This will certainly help if you are keen to enter the market sooner than later and take advantage of favourable conditions, particularly on the East Coast of Australia.

However, you get nothing for nothing.  The reason you can put in less than the usual deposit of 20% is that you are required to take out Loan Mortgage Insurance (LMI) and this will add to the cost of your loan.

That aside, if you really want the property and are willing to bear the cost, then this type of loan will help accelerate your purchase.

If you do decide to borrow the extra amount, then remember to fully assess the additional holding cost and try to reduce the loan to a reasonable level as soon as practical.

Another option you may have is to purchase a property before completion, this is called “Off the Plan” where you pay an initial deposit of 10% in most cases, and no more until the property is fully completed.

In some cases this can be one to three years and it then gives you time to save the remaining 10% required whilst knowing exactly what the purchase price is.

This can be a positive move if you believe the prices will rise in the future as you lock in a price, however make sure you have confidence in the price as if the market softens you can get caught out.  Bottom line is make sure you do your homework.

As a simple rule, it is usually best to buy off the plan when the market is in a “soft” cycle, and most risky when the market is very strong.  Purely because things are always likely to improve when bad, and bubbles burst when blown up too far.

Whether you decide to borrow the extra or buy of the plan, make sure you get the best property you can to give yourself the highest chance of financial success.

Australian Property Investor Magazine
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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.