As an Australian expat, purchasing property in Australia is a compelling option for investment or future residency. However, before committing, it’s crucial to understand the tax implications of owning property in Australia.
If you plan to purchase with your spouse, who is a non-resident, this article is a must-read. The tax rules for non-residents are distinct and can significantly impact your investment returns and overall financial planning.
Stamp Duty
Stamp duty is one of the first tax-related expenses when purchasing property in Australia. This state or territory-based tax is levied when transferring property ownership. The rates and thresholds vary depending on the state or territory in which you are buying. While stamp duty is typically calculated based on the purchase price of the property, if purchasing with a non-resident, you need to be aware of the following:
Foreign Buyer Surcharge
As a non-resident or foreign investor, your partner may be subject to an additional surcharge on top of the regular stamp duty rate. This foreign buyer surcharge is designed to regulate foreign investment in Australian real estate, with the surcharge ranging from 3% to 8% of the property’s value, depending on the state or territory.
For example:
- New South Wales (NSW): The foreign buyer surcharge is 8% of the property’s purchase price.
- Victoria (VIC): The foreign buyer surcharge is 8% of the property price, in addition to the regular stamp duty.
- Queensland (QLD): The foreign buyer surcharge is 7% of the property value.
These additional costs can significantly increase your upfront expenses when purchasing a property, so it’s essential to factor them into your budget.
Property Taxes: Land Tax
If you’re an Australian expat purchasing property in Australia, you may be subject to land tax. This tax is applied to land ownership in Australia and varies by state or territory. However, land tax does not apply to your primary residence but to investment properties.
Foreign Owner Surcharge for Land Tax
Some states and territories impose a foreign land tax surcharge for non-residents or expats. This surcharge is an additional tax on top of the standard land tax rates. The rates and eligibility criteria for foreign owners differ by state.
For example:
- New South Wales: The foreign surcharge is 2% of the land value for non-residents.
- Victoria: The surcharge on land tax for foreign owners is 2% of the property’s taxable value.
- Queensland: The foreign land tax surcharge is 2% on land tax payable.
Land tax is typically assessed annually and is payable by the property owner. It’s crucial to factor this into your ongoing costs as an investor.
Land Tax Threshold
Even if you choose to purchase in your name solely, it’s essential to consider your overall property portfolio. By owning over a certain dollar value of land in any one state, you will be subject to land tax.
- New South Wales: Threshold: $1,039,000. Land tax is payable on land value above this threshold. The tax rates are: 6% on land value between $1,039,000 and $2,624,000. 2.0% on land value above $2,624,000
- Victoria: Threshold: $300,000 (for individuals). Tax is applied on land value above the threshold. Rates include: 2% on land value above $300,000 up to $600,000. 2.25% on land value above $3,000,000
- Queensland: Threshold: $600,000. Land tax is applied to land valued above this threshold. Rates include: 0% on land value above $600,000 up to $1,000,000. 2.0% on land value above $3,000,000
Income Tax on Rental Income
As an expat, if you purchase property in Australia and rent it out, your rental income will be subject to Australian income tax. Rental income is treated as part of your worldwide income, and you are required to declare it to the Australian Tax Office (ATO).
However, as a non-resident, there are certain considerations to be aware of:
- Tax Rates for Non-Residents: Non-residents of Australia are taxed on Australian-source income at different rates than residents. The income tax rates for non-residents start at 32.5% for income between $0 and $120,000, and can increase to 45% for income over $180,000 (as of 2024). These rates may be higher than what a resident would pay.
- Deductions: As an expat, you can still claim certain deductions related to the rental property. These deductions may include property management fees, maintenance costs, insurance, mortgage interest, and property depreciation. However, the rules surrounding deductions are more complex for non-residents, and there are certain restrictions on some deductions, such as negative gearing benefits.
- Foreign Tax Credit: If you are paying tax in the country where you reside, you may be eligible for a foreign tax credit in your home country to avoid double taxation. This depends on the tax treaty between Australia and your country of residence.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is another key consideration for Australian expats who buy property in Australia. CGT is a tax on the profit you make when selling a property, and it applies to both Australian residents and non-residents. However, there are important distinctions between how CGT is applied to residents and expats.
CGT for Non-Residents
Non-residents are subject to CGT on Australian property only, not on assets held outside of Australia. As a non-resident expat, if you sell a property in Australia and make a capital gain, you’ll be required to pay CGT on that gain. However, the tax treatment for non-residents differs from that of residents:
- CGT Discount for Residents: Australian residents can benefit from a 50% discount on the capital gain if the property has been held for over 12 months. However, as an expat (non-resident), you will not be eligible for this 50% CGT discount.
- CGT Rates for Non-Residents: Non-residents are taxed on the full amount of the capital gain without the benefit of the 50% discount. The capital gain is taxed at the same rate as your income, depending on your total taxable income and the capital gain amount. This means that non-residents may face higher CGT liabilities when selling property.
Main Residence Exemption
For Australian residents, there is an exemption from capital gains tax (CGT) on the sale of their primary residence, known as the “main residence exemption.” However, as an expat, if you sell a property that was your primary residence at the time of purchase, but you’ve since moved overseas, you may no longer be eligible for the full main residence exemption.
While the exemption may still apply after you leave Australia, it’s limited. The ATO has specific rules regarding how long you can claim it, typically up to six years if the property was rented out after you moved overseas.
Tax Filing and Reporting Requirements
As an expat, you’ll need to file an Australian tax return if you have taxable income from Australian sources, including rental income, capital gains, or other income. This is true even if you’re not residing in Australia.
The process of filing taxes may be more complicated due to the different rules for non-residents. You may need to seek professional tax advice to ensure compliance with Australian tax laws and avoid penalties.
Disclaimer
This content is for information purposes only and is not intended to be personal financial advice.
