Based on the impact of the 2012 Australian Federal Budget, the Australian Government intends to raise an additional A$55 million over the next four years from property investors living outside of Australia. Previously, all Australian property investors living offshore, including Australian expats, had the same privilege as those living in Australia – a 50 percent tax-free concession on profits they earn from selling an asset they owned for more than 12 months. However, in this year’s budget, this concession has been removed for non-resident investors, who will now pay a Capital Gains Tax on the full amount of profits made. The new scheme is effective from the date of announcement, May 8. So if you are an offshore investor, here are some things you should be aware of:
Past discount stays As the change only affects profits made after May 8, 2012, any profits earned prior to this date still enjoy the 50 percent discount. If you’re thinking of selling your property while living out of Australia, arrange a sworn valuation of your property to establish the value since the date of change.
Don’t sell until you’re living in Australia It seems this concession will only be removed if you’re a non-resident at the time of sale. There’s no legislation to confirm this, but if you wait until you’re living in Australia to sell your property, the full discount likely still applies.
Consider multiple property acquisition Given this change, accruing tax credits is even more valuable than before. And since you’re able to use one property’s tax credits against another, it would be wise to use surplus equity in your current Australian property to make additional investments and improve your tax position and overall return after tax.
Focus on quality Capital Gains Tax has been operative since 1985, and as with all costs, it’s important to ensure you’ve selected an asset capable of covering its expenses and with the promise of an attractive after-tax return. Australian property is a proven performer and should remain an important asset in many people’s portfolios. And with Australia’s continuing population growth, new low supply levels, a strong rental market and a stable economy, investing in the Australian property market remains safe and profitable.
Stop this change The decision to remove this tax concession is a surprise. Though Australia is not reliant on it, foreign investment certainly benefits the property and construction markets and consequently boosts the economy. It’s still possible, though, to change this proposal, which could negatively impact a A$20 billion-per-year market for the sake of a A$55 million gain over four years. Email Australasian Taxation Servicesat firstname.lastname@example.org to restore fairness by having this proposed change stopped.