Prepare for your golden years back in Australia
As an expatriate with no Australian superannuation support, you may be worried about not having any retirement benefits to fall back on when you return home. Fear not. Australian property tax and expatriate tax expert STEVE DOUGLAS suggests an alternative option to help you prepare for your golden years.
When many Australians move overseas to work, they often take up positions that do not have the superannuation (or pension) support they might have while living and working in Australia, where every salaried employee is covered by a mandatory nine-percent employer contribution into superannuation, which accrues for their eventual retirement. Simply put, superannuation is government-regulated savings, a controlled form of financial accrual where various rules are enforced to ensure you cannot simply spend your money and then rely on government support in your retirement. Living overseas and not participating in the forced superannuation savings can translate into a greater savings potential for you if you are disciplined and are actually putting aside your money on your own. Whether you should place your savings into a formal superannuation investment or keep it in your personal account will depend on a variety of issues:
Taxable vs. non-taxable investment
Whether you place your savings into Australian superannuation or otherwise will greatly depend on the tax implications of the country you are working in. In most expatriate jurisdictions, there may be no tax advantage by contributing to superannuation, especially an Australian fund, and many forms of investment may bear no taxation on earnings or growth. When you place your savings into an Australian fund, the earnings on that investment will be subject to Australian superannuation taxation rates of 15 percent or 10 percent. If, on the other hand, you have invested your money in your own personal account, it is tax-free for you in any country, so you are doing yourself a disservice by investing through superannuation rather than placing your savings in your own name.
Flexibility & access
Once funds are placed into an Australian superannuation fund, it’s very difficult to gain access to them prior to retirement. Indeed, it is unlikely you will be able to retrieve your money for many years. This may be less of a concern if you are closer to retirement age of 60.
Importance of a debt-free residence on return
Without doubt, the biggest financial burden for anyone living in Australia is making rental payments or mortgage repayments on their family home. One great tragedy for many Australians is living with the burden of private home debt and not being able to use cash built up in their superannuation to relieve themselves of this financial pressure each month. As an expat with funds in your own name, when you return to Australia, you can enjoy financial freedom and use your funds to reduce this debt rather than have your cash locked up in a savings pot.
Overseas pensions and savings plans When replacing your Australian superannuation with an overseas savings or a pension plan, do practice caution. Other plans do not carry the same tax advantages as those in Australia and often come with very high expenses as they are not protected by the same regulation as funds are in Australia. It is especially important not to sign up for any savings plan with a term of your contribution greater than the time you intend to be overseas.
Potential for rule changes
The government can change the rules affecting superannuation at any time, so your plan could be forced to change against your will. By keeping your savings out of the superannuation system, you can make the choices that are best for you, regardless of any changes that are out of your control.
Danger of a Self-Managed Superannuation Fund (SMSF)
If you are operating a SMSF and you move overseas, there are significant traps to be wary of. While living in Australia and before departing, you cannot contribute to this fund at all, as it may trigger your fund to become non-compliant and subject to severe penalties. In addition, within two years of leaving Australia, you must switch the ongoing management to an Australian-based person or also risk becoming non-compliant. It is essential you seek professional advice to confirm your situation if you had a SMSF when you left Australia. Failure to clarify and set everything in place could put you in a risk of 45 percent of your fund value being taken as a fine for becoming non-compliant.
Topping up your superannuation fund
The best time to put funds into your superannuation fund as an expatriate is when you actually return to live permanently in Australia. At that time, you can evaluate your personal circumstances and make a voluntary, tax-free contribution of up to A$450,000 per person (subject to prevailing rules) and then enjoy the various tax advantages on offer, including tax-free pensions from your fund. As a general rule, the funds you should place into superannuation should be what is left over from your savings after you have:
• Paid out the mortgage on your purchased, long-term residence in your home country.
• Acquired personal essentials such as a car and furniture.
• Set aside a cash pot to cover life’s emergencies, including your children’s education and holiday funds.
This way you will have covered all the personal costs and lowered your cash cost of living while having a comfortable life.
Do I purchase a large property or two smaller joints ?
Australian property tax and expatriate tax expert STEVE DOUGLAS discusses the pros and cons of investing in one large property versus buying two smaller apartments.
This predicament has always been an interesting argument amongst property investors and is one that requires more of an emotional input than a financial one. Most people feel safe buying property of lesser value – psychologically, property bearing a larger value may seem intimidating. However, there really is no reason to worry – whether you invest in one larger property or two smaller ones, the value, the risks and the benefits are similar. Here are a few factors to consider when making your decision:Entry cost Stamp Duty
Stamp Duty is charged by each state government in Australia when you enter a contract to purchase a property. The rate of duty increases with the value of the property, so when you buy one larger property, the Stamp Duty will be higher than the Stamp Duty on each of two properties of lesser value. But these would eventually total up to the same amount.
Initial outlay
When you acquire an investment property in Australia, a 20 percent deposit is required, with the balance funded by a quality lender. There is also the Stamp Duty cost to be factored into the equation – approximately five percent – so you need around 25 percent of your intended purchase as either a cash contribution or as available equity on any other Australian property you may have.
Quality
One of the key drivers of property investment return is growth, and usually the better property in more desirable suburbs will be more expensive than a typical investment property. This extra price tag has proven to be well worth the investment over time, so you should never be afraid to pay a little extra to gain more boons.
Growth prospects vs. Rental
The key advantage of two smaller properties is the likelihood that the combined rental income will be higher as compared to that obtained from a larger property. On the other hand, it’s more likely the larger property will be in a better suburb or of a better style, which can result in higher growth. This trade-off needs to be considered based on your personal cash flow and investment budget. And it’s important to quantify this rather than guess, as the benefit is usually lower than you think. As a guide, it usually works out to be a difference of about 0.5 percent to one percent per year more net rent on the smaller property, so if you feel the larger property will not grow on average by an additional one percent each year over the smaller ones, then you may as well proceed with the property that holds smaller value.
Future use
In Australia, when you live in your own property, there is no tax allowance for interest paid on the mortgage, so it is critical the mortgage is at the lowest possible level when you do start living in the property. As such, if you can lower the entry costs, you then have a better chance of achieving a low- or no-mortgage environment when you move in. This is especially true when you consider that if you chose to opt for two smaller properties that may be sold later to fund your eventual home, you will be required to pay Stamp Duty again, you will have selling expenses and you might have Capital Gains Tax on the sale of the properties.
Here is a cost breakdown, assuming you have bought a property in New South Wales for A$1,260,000, which would buy you a reasonable house or a nice apartment as compared to having two smaller apartments of half the value each. In the table, you can see that purchasing a larger property first, rather than buying smaller properties first and then selling them later to acquire your eventual home, bears a significantly lower entry cost, even after allowing for greater rental income from the smaller properties. This saving of A$229,780 would mean a much smaller mortgage for you to pay out or manage.
Regardless of what property you are considering to acquire or what budget you have, it is most important you strongly believe you have chosen a good property capable of attracting a quality tenant and giving you the best opportunity for growth in value for the amount you intend to spend. When it comes to property, quality is a great protector, so always choose the best you can afford. If it happens to be something you can live in later, that will be a great reward.
Sending your kids to live abroad? Read this!
Australian property tax and expatriate tax expert STEVE DOUGLAS discusses the pros and cons of renting versus purchasing a property to house your children while studying overseas.
RENTAL
Initial outlay
A rental requires only an initial small deposit, usually four weeks rent, so the burden is very low.
Flexibility
Rental leases are usually six to 12 months in duration, allowing a very flexible environment and the ability
to make a change if required.
Ongoing cost
Simple fixed cost, with modest increases throughout the study period.
Multiple children
An additional room or rooms can be taken either at the same location or a different place.
Opportunity to recoup outlay
There is no opportunity at all to recover the rent.
Tax implications
There are no tax implications on renting a property for your child. The expense is not allowed as a tax deduction in Australia.
Initial outlay
A rental requires only an initial small deposit, usually four weeks rent, so the burden is very low.
Flexibility
Rental leases are usually six to 12 months in duration, allowing a very flexible environment and the ability
to make a change if required.
Ongoing cost
Simple fixed cost, with modest increases throughout the study period.
Multiple children
An additional room or rooms can be taken either at the same location or a different place.
Opportunity to recoup outlay
There is no opportunity at all to recover the rent.
Tax implications
There are no tax implications on renting a property for your child. The expense is not allowed as a tax deduction in Australia.
The alternative to renting is to buy a property that is suitable for your child, then sell it at the end of the study period or keep it as an ongoing investment. This move can serve as an opportunity for you to recover some or all of the costs of occupation and of your child’s study from the potential capital gains on the property over the years it was held. This has been a successful strategy for many and should be considered an advantageous option.
OWNERSHIP
Initial outlay
To purchase a property there is a large initial financial outlay. In most cases finance is available for up to 80 percent of the purchase price, which can significantly reduce the initial out-of-pocket outlay. Regardless, a 20 percent deposit plus an allowance for a percent of Government and Transfer fees means a significant up-front commitment.
Flexibility
If you have purchased a property, then ideally you will want your child to stay at that property. If your child wants to stay somewhere else, it would be a fairly unwelcomed decision. It is possible to rent property out to another person should your child insist on an alternative residential venue, so there still is a reasonable level of flexibility.
Ongoing cost
The weekly cost of owning the property with a mortgage will vary greatly depending on the type and location of the property and the initial value.
Multiple children
OWNERSHIPInitial outlay
To purchase a property there is a large initial financial outlay. In most cases finance is available for up to 80 percent of the purchase price, which can significantly reduce the initial out-of-pocket outlay. Regardless, a 20 percent deposit plus an allowance for a percent of Government and Transfer fees means a significant up-front commitment.
Flexibility
If you have purchased a property, then ideally you will want your child to stay at that property. If your child wants to stay somewhere else, it would be a fairly unwelcomed decision. It is possible to rent property out to another person should your child insist on an alternative residential venue, so there still is a reasonable level of flexibility.
Ongoing cost
The weekly cost of owning the property with a mortgage will vary greatly depending on the type and location of the property and the initial value.
Multiple children
If you purchased a property with two or more rooms, then the cost for having your other children stay in the house will not result in any cost increase.
Opportunity to recoup outlay
If you have chosen a decent property in a good area, it’s highly likely the value will rise over the period of study, and the gains would be sufficient to cover most of the weekly ownership costs. If you have selected a better area or allow some additional time for the value to improve, then you may not only fully recover the holding expenses but also the cost of the education.
Tax implications
It is possible to gain substantial tax benefits when having your children live in your property. This can offset tax issues you may have on other Australian property you own or build up as a future tax benefit to offset
Opportunity to recoup outlay
If you have chosen a decent property in a good area, it’s highly likely the value will rise over the period of study, and the gains would be sufficient to cover most of the weekly ownership costs. If you have selected a better area or allow some additional time for the value to improve, then you may not only fully recover the holding expenses but also the cost of the education.
Tax implications
It is possible to gain substantial tax benefits when having your children live in your property. This can offset tax issues you may have on other Australian property you own or build up as a future tax benefit to offset
Make the right investment choices?
Looking to invest your well-earned cash? Australian property tax and expatriate tax expert STEVE DOUGLAS discusses the pros and cons of investing in shares versus property and offers advice on making a practical decision to get your wealth portfolio into shape.
The question of where one should invest their money, whether in property or shares, has been a topic of discussion for quite some time and is still a widely discussed matter. Despite how many people believe the long term return of shares and property are very similar, there are some key tax issues you need to take note of before making a decision. When living outside of Australia, there is no capital gains tax on profits made from the sale of shares. Nor is there any income tax on dividends received each year. Non-resident taxpayers who invest in shares usually enjoy a tax-free status, making this an extremely attractive investment option for many expatriates and foreign investors in Australia. Many expatriate zones allow tax-free status on international shares, but you should note that you may still face tax issues in the country you are living in, so it’s best to clarify and check on the matter first before you make a decision. Having a tax-free status is a major positive, but it’s not the only advantage. Other plus points include the following:
• Shares are easy to accumulate as they can be bought in parcels from A$500 upwards.
• It’s easy to sell shares listed on a stock exchange, with sale proceeds usually available within three days from the sale. In many cases shares can offer very attractive dividend yields, which currently can be well above the interest rates on offer for bank deposits.
Nothing is perfect though, and there are a few issues you need to take note of before investing in shares. The market risk of shares can be very volatile, as proven by outcomes in the recent past. And because there are many share options in the market, it can get confusing when you need to make choices as to which shares to buy. Nonetheless, shares can be a sensible part of any investment portfolio and well worthy of consideration.
Property, on the other hand, holds very different characteristics in comparison to shares. Owning Australian property will always be a taxable activity regardless of where you live. But it can be a very tax-effective investment, as the Australian government allows property-related expenses, such as interest on loans, maintenance, agent fees and insurance on the property, to be offset before any tax is levied. In addition there are special write-offs on the construction costs and internal fittings of a property, ensuring no annual income tax is payable. Investing in property has remained popular for other reasons, including the following:
• By nature ‘bricks and mortar’ have been considered a safer investment choice than other investment forms. This is especially true for Australian property, which has shown long-term, modest and sensible increases with few negative growth periods.
• Banks are happy to lend 80 percent of a property value, which can make the entry cost into property a lot easier, while at the same time improving your tax position and enhancing the overall returns.
• While living overseas, the ability to rent the property out during your absence makes it very affordable to hold a property. The net ownership cost (rent minus expenses and interest) can be less than one percent per annum of the purchase price, which means that a A$1 million property costs less than A$1,000 to own. As long as the property appreciates more than this, then you are financially better off. And for the more desirable areas in Australia, the growth has consistently outpaced this holding cost, making the decision to buy a smart one.
From a negative perspective, there are a few issues you need to consider. The initial entry price of property can be both scary and significant. The first property you buy will usually need a 20 percent deposit plus up to 5 percent for purchase costs, which means you will need to commit a fair sum to enter the market. Secondly, property by nature is a long-term investment, which is especially true for Australian property as the safe market results in modest growth that in turn needs as long as possible to perform at its peak. Also, a quick exit from the property market can be difficult – it can take between two to eight months from decision to sell and receive the proceeds.
The decision as to which investment choice is best for you usually starts with how much you have to invest. If you want to buy a property, you need a substantial deposit of 25 percent or equity in another property. So if you are short of that amount, you will have to wait on the sidelines.
As such, it’s best to consider accumulating your regular savings in shares along the way, and when you see the right property for you in your budget range, cash in your shares and grab the property. Then, launch your share accumulation all over again for your next property. As an Australian, regardless of which option you choose, you will have a tax-advantaged investment option and will be able to build wealth along the way to improve your financial future.
FREE SEMINARAttend a special presentation entitled, The Aussie Expat – The Luckiest Person on Earth on February 20 and understand issues affecting Australians working abroad. Call 6293 3858, register online at www.smats.net or simply scan the QR Code to make your booking.
Claiming airfares against your Aussie tax
Australian property tax and expatriate tax expert STEVE DOUGLAS explains the grounds under which you can recover airfares back to Australia.
Q Can I claim my airfares back to Australia against my income tax?A Yes, you can claim the cost of travelling to Australia against your tax provided you’re collecting rental on an Australian property. And to justify your claim, part of your trip must be spent inspecting the property.
When deciding how much of the airfare you can claim, the Australian Taxation Office looks at the main reason for your trip. If the primary purpose of the trip was property related – such as overseeing a tenant changeover or major repair works – you are able to claim your airfare in full. You can also claim other travel expenses for hotels, meals, car hire and other associated costs for the relevant number of days of property-related activity.
Trips made to find or acquire a property can offset future capital gains only when the acquired property is eventually sold. However, if you’re already collecting rental the trips are claimable against your annual income tax. If the trip has a dual purpose, such as returning to Australia to visit family over Christmas while also tending to your property, you can claim your airfare on a pro rata basis. So for example, if you spend two days of a 10-day trip attending to your property, you can only claim 20 percent of your airfare and two days of hotel and meal costs against your Australian income tax returns.
If you’re travelling with other family members, you can only claim their expenses if their names are on the property title. For the record, it’s not worth putting your kids on the title to boost this claim as it can create all sorts of subsequent problems. To ensure your claims are lodged without any hiccups, keep a simple diary to confirm your activities and keep receipts of your airfare and other expenses. Frequent Flyer tickets can only be claimed for the actual cost of the ticket, which is usually just the airport tax. The implied ticket value cannot be claimed. There’s no maximum number of trips you can claim in any year, so each visit is eligible for a deduction as long as it’s justified.
The tax implications of moving back into your previously rented home
Australian property tax and expatriate tax expert STEVE DOUGLAS advises on the tax implications of moving back into a property you previously rented to a third party.
Q I’ve been renting out my house in Australia but plan to move back in shortly. Can I claim any maintenance expenses before that? A When you rent out a property in Australia, all expenses incurred in keeping it in a tenantable condition are considered an expense which can be claimed either in full as general maintenance or as a progressive depreciation claim for more substantial items such as stoves and carpets.
If you intend to move back into the property, you can claim all expenses incurred in bringing the property back to a satisfactory condition at the end of the rental period. This includes painting, garden maintenance and general repairs. If possible, initiate all repairs before moving back into the property or within a reasonable period to claim the expenses in full.
The length of your ownership may have a bearing on the amount you can claim. For example, if you recently acquired the property and have rented it for only six months, the total tax deduction may be reduced if it appears the property is being improved substantially from the time it was acquired rather than being maintained over the course of the short rental period. The longer the rental period, the more likely full maintenance expenses will be allowed when the rental period comes to an end.
Expenses to improve the nature of the property – new carpets, kitchen equipment or any structural improvements – aren’t usually considered an expense but allowed as a partial annual write off if there’s rental income. So if the rental ceases so does the tax deduction entitlement, as these items will provide benefit to the owner-occupier in the future. This may allow you to claim any residual amount on old items you replaced, such as a stove. Any unclaimed depreciation will be allowed as a full write off in the year the item was replaced and could amount to a reasonable tax offset in the final year of rental depending on how old the item was. If the items were recently replaced, then only the depreciation allowance for the rental period will be allowed. But this will cease to be a deduction once the property is no longer rented. You’ll also not be able to write off any remaining value unless the item is replaced and scrapped.
I’m often asked if it’s worth doing major repairs prior to moving in. Generally speaking the depreciation write off is not sufficient to warrant the fact that you may prefer to be the first user of the item rather than the tenant. If you have substantial expenses to be incurred during the changeover it’s wise to seek professional advice on the various expenses to determine the tax deduction available to you, prior to the expense being incurred.
Is renovating your Aussie rental property a good idea ?
Australian property tax and expatriate tax expert Steve Douglas outlines the factors to consider when deciding whether to renovate rental property in Australia.
Q My property agent has suggested that I spend some money renovating my apartment. Is this a good idea?
A If your property is in need of some work, it’s always a good idea to get the work done whilst the property remains a rental. Normally this will assist your tax as all expenses – in some way – will be a tax deduction. Items that are defined as ‘maintenance’ or ‘repair’ such as painting, general handy work, gardening and landscaping are fully deductible. Other items such as new carpets or structural improvements are allowed as a deduction over a few years as depreciation.
Renovation usually increases the property value and weekly rental, so financially it is also a good decision for this reason. Renovating will also make your property more attractive to potential tenants, so vacancy rates are also reduced.
You should consider increasing your mortgage to fund the property improvements, rather than using cash savings. This can also improve your tax and investment benefits. The easiest rule to help you decide if the costs are warranted is to use the interest cost as the yardstick. For example, if your property requires $10,000 to be spent on it and the bank interest rate is 6 percent per annum, then you need to increase your rental returns after the renovation by at least $600 per annum – or $11.54 per week – to justify the expense. Your agent can give you an estimate of the potential increase as a result of your repairs. It is common to expect the value to go up by one-and-a-half times the amount spent.
The best time to do repairs is in between tenants. However a very good tenant may also be interested in such improvements and may not mind the inconvenience of tradesman whilst they live in the property.
When deciding on how much to spend, don’t forget that it is a rental property. Be relatively conservative on budget and ensure that your updates improve the liveability factor of the property from a tenant’s perspective.
Do you need to lodge a tax return for an unprofitable Aussie property?
Australian property tax and expatriate tax expert STEVE DOUGLAS outlines the importance of lodging a tax return for an unprofitable Aussie property.
Q Do I have to lodge a tax return for my Australian property that isn’t making me any money?
A It’s a common misconception that if you are not making any profit on your Australian property, you don’t need to lodge an income tax return. This is not correct. It is a legal requirement to lodge an Australian Income Tax Return every year you receive any taxable Australian income. For most people, the only taxable Australian income is likely to be based on the collection of any Australian property rental during the year, regardless of whether or not the rent is greater than the expenses. In fact, if the expenses on the property are greater than the income, losses need to be calculated and lodged as they carry forward indefinitely to offset any future rental or other Australian income and capital gains. With such regulations in place, you can reap great personal benefits with substantial planning and you’ll also lodge and record your tax returns correctly and on time each year.
If you chose to prepare the return yourself for the previous financial year ending June 30, you must lodge the return before October 31 in the same year. Failure to lodge your return by the deadline can lead to penalties of up to AUD$550 for each year – and per person – even when there may be no tax payable. If you have a Registered Tax Agent to prepare your return then you have time extensions that allow lodgment through to April the following year. You should not be concerned about the need to lodge an Income Tax Return, it is a simple process and can actually prove to your benefit in most circumstances.
If you receive income from an Australian company while living overseas and the income relates to services provided out of Australia, the income will not be taxable. If you have earned any Australian bank interest that is not taxable income, the bank should be deducting a Withholding Tax of 10 percent from your interest – then there is no further tax obligation or need to report in Australia. Similarly, if you receive ‘Unfranked’ dividends from an Australian company, a Withholding Tax would apply with no further obligation. If you have received ‘Fully Franked’ dividends – where the company has paid the tax prior to the dividend payment – then no further tax obligation exists and no Withholding Tax is required to be levied. Also, income from shares in Australian public companies is tax-free Capital Gains for non-residents.
Australian tax laws are very complicated but they are also quite fair and manageable when you are living overseas. It is just important to be aware of your obligation to lodge a return, obtain good guidance on your personal situation and seek professional support to ensure your tax obligations are kept to reasonable levels.
Minimising the cost of land tax on your Aussie property
Australian property tax and expatriate tax expert STEVE DOUGLAS explains when land tax may be applicable to you and how to minimise the cost.
Q How do I determine if I need to pay land tax on my Australian property?
A In Australia the Federal Government is entitled to receive income tax and capital gains tax which is managed when you lodge your annual tax return. Under the Australian Constitution, state governments aren’t entitled to charge any taxation against income or capital receipts. However they are entitled to raise levies or duties on activity within their state. One of the major levies in each state is land tax. Many living in Australia are unfamiliar with land tax as it’s not charged on family homes but only on vacant land, rental property or commercial property. To qualify for family home exemption you must be physically living in the property on the date of determination – different for each state – and it’s difficult to achieve this if you’re overseas. Some states acknowledge the family home exemption even if you’re abroad but only if you’re not renting out the property while away. However, you’ll have to pay land tax as long as you own more than one rental property in the same state.
Each state has a different land tax rate, usually based on the unimproved value of the land the property sits on in a similar calculation to the annual local council rates. There’s usually a tax free threshold on offer if you only have one property – in addition to your family home – where you’re under the tax level and not liable for land tax. This is an advantage if you own properties in different states as you get a new threshold for each state. In addition, the land tax on an apartment will be substantially less than that of a house as the unimproved land value is shared over the many owners and creates a lower individual value for tax purposes. Since land tax is calculated on the cumulative value of all the property you own in a particular state, the more property you own the higher your rate of land tax and the higher your cost.
The annual cost can vary from a few hundred dollars to several thousands, and each State Revenue Department is active in seeking out non payers and recouping any land tax arrears. If you think you may have a potential land tax liability, contact your property manager or the State Revenue office to confirm if you’re over the relevant threshold for your state – otherwise the penalties can be expensive!
Land tax isn’t a deterrent to purchase, just more of a nuisance. It can however become expensive if you have a substantial property portfolio in one state and needs to be considered when working out your cash flow on your rental property. Knowing land tax is due shouldn’t change your decision to invest as any well maintained house will grow in value to justify the additional cost. However, you should review your investment strategy to allow for multi-state property ownership and a sensible mix of houses and apartments to keep your taxable land value down.
Is your Aussie property due for a valuation?
If you’re an Australian expat or a foreign investor with a property down under, Australian property tax and expatriate tax expert STEVE DOUGLAS explains how you’ll be affected by the new budget and what your next steps should be.
Q Do I require a valuation on my property due to the recent changes in the Australian budget?
A In May 2012 Treasurer Wayne Swan announced a change to the Capital Gains Tax for all non-resident taxpayers, which will mainly affect Australian expatriates and foreigners who own a property in Australia. Under the old rule, anyone who owned a property in Australia and sold it for a profit was liable for Capital Gains Tax. And if they owned this property for more than 12 months, half of this gain was tax free and the other half taxable.
The recent change has proposed that all profits made after May 8, 2012 will no longer be entitled to the half tax-free concession. However, this change only affects profits made after May 8. Any profits made prior to this date will still enjoy the 50 percent discount. To establish your profits up to May 8, its wise to arrange a sworn valuation on your property, which can be used to establish how much of the future gain on sale will enjoy the discount. Here are a few factors to consider when arranging a valuation:
Time of sale If you don’t think you’ll sell the property until you are back residing in Australia, a valuation may not be required as you’ll still enjoy the 50 percent discount on your entire capital gain – including the period you lived out of Australia. This is because only non-resident taxpayers are ineligible for the discount; if you were to return and become a resident taxpayer once more, you would receive the full discount.
Qualifications of the valuer The valuation must be done only by a qualified person and must be in the form of a sworn valuation – not an appraisal letter from a local real estate agent. The Australasian Taxation Services is arranging a bulk discount with valuation groups, so email cgtchange@smats.net should you need any assistance to ensure a proper valuation at a good price.
True market value Make sure you give your valuer proper instructions. This is not a conservative bank valuation, but rather a true optimistic assessment of the best value the property is considered to be worth. Be sure your valuer understands this as it can make a big difference in your future tax position.
Personally, I wouldn’t rush to arrange a valuation until the final legislation has been passed through Parliament in Australia. The Australasian Taxation Services has made a submission to the Government to try and stop this law from being passed as, logistically, it will be difficult to administer and may have a detrimental effect on foreign investment in Australia. You can view the submission and join the online petition at www.cgtchange.com.
