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.
