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With all the hype in Australia now on the very hot property market, this is an extremely common question, so below I have set out some of the factors which should be considered.
Finance: This can largely dictate your structuring options and with interest rates at record lows, this can be attractive (however make sure you run your numbers if there is a rate rise). As an expat, any tax loss that your property makes, if not utilised that year, will continue to roll forward forever, until used against future Australian sourced income such as positive rental income, capital gains or salary and wages. This can have quite an accumulative effect over several years and can result in a lovely bonus when you eventually return to Australia and can enjoy some tax-free income. Importantly, you should always start with a mortgage broker to check your borrowing capacity, structure options and obtain a pre-approval before you make an offer.
Individual or Joint Ownership: This is generally the easiest option to secure a loan and the benefits can include access to an apportioned 50% capital gains tax discount upon sale, access to the losses which the property derives (as the losses stay aligned to the ownership) and access to the principal place of residence exemption should you decide to move into the property in the future. On death, the property will also transfer stamp duty free in accordance with your Will, however the capital gains tax cost base will be retained.
Discretionary Trust: Lending can be a little tricky through a trust, and the trust also cannot distribute a tax loss. However, if the property is positively geared, the trust can distribute the income over several different resident beneficiaries such as children (up to $416 each), adult children (18 or older and adult marginal tax rates apply), non-working spouses and parents (watch Centrelink Pension benefits). Land Tax can be higher in a trust, and there are additional compliance costs to keep the accounts and file a trust tax return. The trust can also run for 70 years so good for asset succession planning.
Australian Company: Lending can also be tricky through a company and the company cannot distribute a loss. You can claim travel to inspect your property if owned through a company, however you miss out on access to the 50% CGT discount. Further, a company will generally tax the profits at 30%, then it can pay a dividend to a non-resident shareholder without any top up tax.
SMSF: Acquiring a property in a self-managed superannuation fund (SMSF) is sadly not an option for an expat so you will have to wait until you return to Australia before considering this.
- Land Tax can be a nasty surprise if you have multiple properties in the one state, a part foreign ownership or large land holdings.
- Stamp Duty cannot be avoided however some concessions are available if you plan to move into the property within 6-12 months.
- Most importantly, the above is very general and each person’s circumstances are unique so we highly recommend contacting us for an obligation free consultation so we can tailor the right advice for you.
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