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Q. “My family and I are considering buying an Australian investment property; however, we are not sure whether it is the right time and if there are any adverse tax consequences whilst we are expatriates?”
A. The Job Keeper program in Australia is in the process of scaling down until it finishes at the end of March 2021, together with bank loan repayment holidays coming to an end, largely in quarter 1, 2021. The combination of removing two relief programs from the economy could result in an additional supply of properties, which in turn could push some prices down and result in good buying opportunities. That said, the property market is complex, and I would always recommend speaking with an expert in this area.
There are however Australian Tax considerations for buying (and selling) Australian property when you are living offshore as a non-resident. These include:
Capital Gains Tax: As a non-resident of Australia for tax purposes, you are exempt from the 50% capital gains tax discount for the period when you resided offshore post 8 May 2012 (when this new rule came in), compared to the total period of ownership on a pro-rate basis. So, if you held an investment property for 10 years, 5 of which you were a non-resident, then on sale, you would qualify for a 25% capital gains tax discount only.
Also a major change that came into effect from 1 July 2020 was the removal of the capital gains tax Principal Place of Residence (PPR) exemption for non-residents, meaning that if you sell a property which has a PPR exemption period (i.e. you used to live in it for a period of time) while you are a non-resident of Australia for tax purposes, you will forgo this exemption. This does not affect those buying a future family home as an expat as you need to live in the property first for it to start accruing this tax free period, however this is a consideration for those selling a former family home during their time as an expat. If you are considering buying a future family home and renting it out until you return to Australia, these concessions are still available to you, however only for the period when you live in the property in the future and providing you sell it when you are a tax resident.
Negative gearing benefits are still available as an expat buyer, meaning that if you make a tax loss at the end of the year, this will then carry forward (assuming you have no other Australian sourced income to use it against) and be a future benefit to you against future Australian salary and wages, capital gains and other Australian sourced income and these losses will carry forward indefinitely. Interest, genuine repairs and maintenance and depreciation are all deductible (just to name a few) which can result in creating some useful additional tax losses for the future.
When considering a future property purchase, ensure you have done your cash flows to make sure you can afford it, now and into the future, including taking into consideration rental reductions and interest rate rises.
Tristan is an Australian Tax Agent and expatriate tax advisor based in Singapore, contact him below to discuss your situation in further detail. Select Investors Australia also presents regular webinars around these topics. The most recent Australian Property Market Update webinar is accessible at selectinvestorsevents.com