Australian property tax and expatriate tax expert STEVE DOUGLAS explains the tax consequences of gifting money to an Australian resident.

Q. I’m thinking of giving my parents in Australia some money to help them out. Are there any tax issues if I do this?

A. In Australia, there are no Gift Duties, so you can freely send money home to your parents, family or anyone else without any tax consequences. Despite Australia’s reputation as a high taxing country, it’s one of the few western governments which doesn’t have a Gift Duty or Inheritance Tax – so perhaps the Australian tax regime is fairer than people realise. If you intend to send a gift to your parents there are unlikely to be any tax consequences. However, in some circumstances this is not the case. If your parents are in receipt of an Australian Government Pension, your financial gift will need to be declared pursuant to the Pensions Assets test – so check with your parent’s advisors prior to making the payment.

        You should also be careful if the gift is linked to a commercial transaction. For example, if you have jointly invested with your family in Australian-listed shares, but held them in your name to enjoy the tax-free benefits offered to overseas investors and then gift the share proceeds, the Australian Taxation Office will treat this amount as a taxable income. This won’t affect your tax status. But it will affect the Australian-based recipient and ensure increased scrutiny by the Australian tax authorities. In short, don’t avoid Australian taxation laws or alter the true nature of any transaction.
          In addition, you should also clearly identify if your gift is a permanent gift or a repayable advance. If you expect the money to come back to you, it’s free from any tax issues, however if you intend to receive interest on the advance, then the interest component is subject to a Withholding Tax of 10 percent. If the amount is an “interest free” loan, the simple repayment of the original loan will have no tax consequences and you’re entitled to receive the capital however you see fit. 
          Always consider the full ramifications of any gift, as there may be legal issues. A true gift is non-taxable and non-recoverable, so be sure this is what you intend at the moment of your initial generosity.

Australian property tax and expatriate tax expert STEVE DOUGLAS explains what to weigh up if you’re considering fixing your interest rate.

Q. Interest rates in Australia have reduced, should I look at fixing my rate now?

A. On February 3, 2009 the Reserve Bank of Australia announced a further one percent per annum reduction in the official interest rate, taking it to the lowest in 45 years. When deciding whether to fix your interest rate it’s important to consider the following issues:

Will rates come down further? If you feel a further reduction is possible, wait. The ideal time to fix an interest rate is immediately before the start of the next rate rise cycle. This isn’t easy to predict, so it may be best to fix your interest rate when it suits your financial position.

How do fixed rates compare with the variable? Most loans have a generous discount against the Standard Rate, which is often a lower rate than the fixed option. Make sure you’ll actually be saving when choosing a fixed rate.

How long to fix for? Don’t fix for a period longer than you intend to keep the loan. If you’re thinking of selling your property or paying out the loan in a year, fix your rate for just one year. If you have a longer time horizon, choose the most affordable mix of rate and term.

Should I fix the whole loan? Consider a mix of fixed and variable. This allows you to reduce the variable component more aggressively, if that’s in your best interests. It may also help if rates decline further, as you’ll still benefit on the variable portion.

What are the tax implications? If you do benefit from a reduced cost fixed rate loan, make sure you assess your taxation situation. You may need to review your planning to adjust for the lower holding costs to avoid nasty tax surprises in the future. Remember, it’s better to have lower cost than lower tax.

The Australian property market has escaped the global financial crisis due to strong regulation and a mature lending market. Australian loans remain amongst the best in the world so it’s easy to find a loan which matches your long term objectives. Fixing your loan is a decision based on mental comfort and financial certainty, but common sense suggests striving for lower costs wherever possible!

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australian property tax and expatriate tax expert STEVE DOUGLAS explains the tax consequences of gifting money to an Australian resident.

Q. I’m thinking of giving my parents in Australia some money to help them out. Are there any tax issues if I do this?

A. In Australia, there are no Gift Duties, so you can freely send money home to your parents, family or anyone else without any tax consequences. Despite Australia’s reputation as a high taxing country, it’s one of the few western governments which doesn’t have a Gift Duty or Inheritance Tax – so perhaps the Australian tax regime is fairer than people realise. If you intend to send a gift to your parents there are unlikely to be any tax consequences. However, in some circumstances this is not the case. If your parents are in receipt of an Australian Government Pension, your financial gift will need to be declared pursuant to the Pensions Assets test – so check with your parent’s advisors prior to making the payment.

          You should also be careful if the gift is linked to a commercial transaction. For example, if you have jointly invested with your family in Australian-listed shares, but held them in your name to enjoy the tax-free benefits offered to overseas investors and then gift the share proceeds, the Australian Taxation Office will treat this amount as a taxable income. This won’t affect your tax status. But it will affect the Australian-based recipient and ensure increased scrutiny by the Australian tax authorities. In short, don’t avoid Australian taxation laws or alter the true nature of any transaction.

          In addition, you should also clearly identify if your gift is a permanent gift or a repayable advance. If you expect the money to come back to you, it’s free from any tax issues, however if you intend to receive interest on the advance, then the interest component is subject to a Withholding Tax of 10 percent. If the amount is an “interest free” loan, the simple repayment of the original loan will have no tax consequences and you’re entitled to receive the capital however you see fit.

          Always consider the full ramifications of any gift, as there may be legal issues. A true gift is non-taxable and non-recoverable, so be sure this is what you intend at the moment of your initial generosity.

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australian property tax and expatriate tax expert STEVE DOUGLAS explains how foreign currency loans can be subject to margin calls.

Q. The bank has made a margin call on my foreign currency loan, is this tax deductible?

A. With Australian dollar interest rates rising higher than loans in Singapore, Hong Kong or US dollars, many investors opted to “switch” their loan to a foreign currency, in the hope of saving money. In truth this isn’t always a real saving, as the currency may move against you. While the Australian dollar was strong you would’ve been sheltered – and indeed even benefited. But the recent devaluation of the Australian dollar has caught many borrowers out, increasing their overall debt.
           In short, banks are willing to lend a maximum of 80 percent against an Australian property in Australian dollar equivalent, or 75 percent if you choose to borrow in a currency other than Australian dollars. This is because all currencies fluctuate and the lower lending-percentage covers some of the risk.
           When we saw the Australian dollar fall almost 10 percent in a two-week period in August 2008 followed by a similar reduction in September, loans held in “cheaper” foreign currencies became a larger debt in Australian dollar terms – breaching the 80 percent maximum limit. Banks moved quickly to protect their position, making margin calls. This request for an additional repayment – or security – to return the lending ratio below the 75 percent foreign currency maximum, can amount to many thousands of dollars and would have been a nasty shock for many.
         If you don’t have access to additional funds, the bank may convert your loan into Australian dollars – resulting in you owing more than when you first drew down the loan! In essence this is similar to an interest cost, as it’s somewhat covered by the lower interest rate you enjoyed during the period of foreign currency. However, as you’re likely to be a non-resident for tax purposes, this margin call is not tax-deductible against your income tax, further worsening your position. At best it may be considered a capital cost. The silver lining is currency gains are not taxable. So if you were fortunate to have cashed out of your foreign exchange when the Australian dollar was strong, any profit is clear of tax.
         Ironically now the dollar has corrected downwards, these loans may have become worthy of consideration – if you have the resources and time to manage them appropriately. To determine the best lending option for you, use the unique Foreign Currency Loan Assessor and detailed information available at www.aussieproperty.com.

Australian property tax and expatriate tax expert STEVE DOUGLAS explains how foreign currency loans can be subject to margin calls.

Q. The bank has made a margin call on my foreign currency loan, is this tax deductible?

A. With Australian dollar interest rates rising higher than loans in Singapore, Hong Kong or US dollars, many investors opted to “switch” their loan to a foreign currency, in the hope of saving money. In truth this isn’t always a real saving, as the currency may move against you. While the Australian dollar was strong you would’ve been sheltered – and indeed even benefited. But the recent devaluation of the Australian dollar has caught many borrowers out, increasing their overall debt.

In short, banks are willing to lend a maximum of 80 percent against an Australian property in Australian dollar equivalent, or 75 percent if you choose to borrow in a currency other than Australian dollars. This is because all currencies fluctuate and the lower lending-percentage covers some of the risk.

When we saw the Australian dollar fall almost 10 percent in a two-week period in August 2008 followed by a similar reduction in September, loans held in “cheaper” foreign currencies became a larger debt in Australian dollar terms – breaching the 80 percent maximum limit. Banks moved quickly to protect their position, making margin calls. This request for an additional repayment – or security – to return the lending ratio below the 75 percent foreign currency maximum, can amount to many thousands of dollars and would have been a nasty shock for many.

If you don’t have access to additional funds, the bank may convert your loan into Australian dollars – resulting in you owing more than when you first drew down the loan! In essence this is similar to an interest cost, as it’s somewhat covered by the lower interest rate you enjoyed during the period of foreign currency. However, as you’re likely to be a non-resident for tax purposes, this margin call is not tax-deductible against your income tax, further worsening your position. At best it may be considered a capital cost. The silver lining is currency gains are not taxable. So if you were fortunate to have cashed out of your foreign exchange when the Australian dollar was strong, any profit is clear of tax.

Ironically now the dollar has corrected downwards, these loans may have become worthy of consideration – if you have the resources and time to manage them appropriately. To determine the best lending option for you, use the unique Foreign Currency Loan Assessor and detailed information available at www.aussieproperty.com.

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australian property tax and expatriate tax expert STEVE DOUGLAS explains the tax liabilities associated with transferring money to Australia.

Q. I want to send some money back to Australia but heard if I send more than A$10,000 it may be taxable in Australia, is this true?

A: A common misconception held by expatriates and intended migrants is that if they transfer more than A$10,000 to Australia, it may be subject to tax. This is a complete fallacy.

           The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 requires anyone carrying more than A$10,000 when entering or departing Australia to declare the funds to Australian Customs. This doesn’t make it taxable. The declaration is merely for security purposes to help the Australian Government track large sums which might be linked to drug trafficking, money laundering or terrorism activities. Providing you have a legitimate source for the cash, you’re able to carry the funds in and out of Australia without any problems.

          As such, funds of any amount can be legally transferred in and out of Australia without making a declaration to the Australian authorities. When you transfer money internationally you register with an approved money transfer authority, where you verify your identity and credibility. If you’re a non-resident in Australia – meaning you’re not living and working in Australia – there’s no obligation to pay tax on transfers of capital. Your offshore salary, savings, investment earnings aren’t subject to tax – even if you transfer it to Australia. Only rental income and capital gains on Australian real estate are subject to tax. And even then, there are tax incentives to minimise tax. Profits on Australian share trading or fully franked dividends are also not taxable.

          If you transfer funds to an Australian interest-earning bank account, make sure you tell the bank you’re a non resident so it can deduct the mandatory 10 percent Withholding Tax from the interest earned. This fulfills your Australian tax obligations, so you don’t have to declare the interest earned in an annual tax return.

          So you can send funds in and out of Australia for personal reasons – such as property purchases, share purchases, property holding costs, or simply to help out your family – because there’s no tax liability!

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australian property tax and expatriate tax expert STEVE DOUGLAS explains the tax liabilities associated with transferring money to Australia.

Q. I want to send some money back to Australia but heard if I send more than A$10,000 it may be taxable in Australia, is this true?

A: A common misconception held by expatriates and intended migrants is that if they transfer more than A$10,000 to Australia, it may be subject to tax. This is a complete fallacy.
            The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 requires anyone carrying more than A$10,000 when entering or departing Australia to declare the funds to Australian Customs. This doesn’t make it taxable. The declaration is merely for security purposes to help the Australian Government track large sums which might be linked to drug trafficking, money laundering or terrorism activities. Providing you have a legitimate source for the cash, you’re able to carry the funds in and out of Australia without any problems.
             As such, funds of any amount can be legally transferred in and out of Australia without making a declaration to the Australian authorities. When you transfer money internationally you register with an approved money transfer authority, where you verify your identity and credibility. If you’re a non-resident in Australia – meaning you’re not living and working in Australia – there’s no obligation to pay tax on transfers of capital. Your offshore salary, savings, investment earnings aren’t subject to tax – even if you transfer it to Australia. Only rental income and capital gains on Australian real estate are subject to tax. And even then, there are tax incentives to minimise tax. Profits on Australian share trading or fully franked dividends are also not taxable.
          If you transfer funds to an Australian interest-earning bank account, make sure you tell the bank you’re a non resident so it can deduct the mandatory 10 percent Withholding Tax from the interest earned. This fulfills your Australian tax obligations, so you don’t have to declare the interest earned in an annual tax return.
          So you can send funds in and out of Australia for personal reasons – such as property purchases, share purchases, property holding costs, or simply to help out your family – because there’s no tax liability!

Australian property tax and expatriate tax expert Steve Douglas explains how expenses from any property related visits to Australia can become a tax deduction.

Q: As an Australian property owner I’ve heard I can claim any airfares to Australia against my tax, is this true?

If you collect rental on an Australian Property and are therefore earning an income from it, you can certainly claim the cost of travelling to Australia against your tax. Just make sure at least part of the trip is spent inspecting the property!

Sadly, if you don’t have a property then you can’t claim any expenses. Similarly even if you do have a property, you must actually visit your property in order to justify the claim.

If the primary purpose of the trip was for property-related business – such as a tenant changeover – then you’ll be able to claim airfares in full plus any expenses for hotels, meals, car hire and associated costs, for the number of days of property-related business activity.

Trips made to find or acquire a property can only be offset against future capital gains when the acquired property is eventually sold. But if you are already collecting rental all trips are claimable against your annual income tax.

If the trip has a dual purpose – such as Christmas and a property inspection – then you’ll be able to claim your airfares on a pro-rata basis. For example, if you spend two days out of a 10-day holiday on property business, then you can claim 20 percent of your airfare and two days of hotel, meal and car-hire expenses.

Keep in mind you can only claim expenses for the people listed on the property’s title, so you cannot include your children for example. And to ensure no trouble with the Tax Office, keep a simple diary to confirm your activity and hold onto receipts for airfares and other expenses.

There’s no limit to the number of trips you can claim. But there must be a genuine purpose to justify the tax deduction.

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australian property tax and expatriate tax expert Steve Douglas explains how expenses from any property related visits to Australia can become a tax deduction.

Q: As an Australian property owner I’ve heard I can claim any airfares to Australia against my tax, is this true?
 

If you collect rental on an Australian Property and are therefore earning an income from it, you can certainly claim the cost of travelling to Australia against your tax. Just make sure at least part of the trip is spent inspecting the property!
          Sadly, if you don’t have a property then you can’t claim any expenses. Similarly even if you do have a property, you must actually visit your property in order to justify the claim.
          If the primary purpose of the trip was for property-related business – such as a tenant changeover – then you’ll be able to claim airfares in full plus any expenses for hotels, meals, car hire and associated costs, for the number of days of property-related business activity.
          Trips made to find or acquire a property can only be offset against future capital gains when the acquired property is eventually sold. But if you are already collecting rental all trips are claimable against your annual income tax.

          If the trip has a dual purpose – such as Christmas and a property inspection – then you’ll be able to claim your airfares on a pro-rata basis. For example, if you spend two days out of a 10-day holiday on property business, then you can claim 20 percent of your airfare and two days of hotel, meal and car-hire expenses.
          Keep in mind you can only claim expenses for the people listed on the property’s title, so you cannot include your children for example. And to ensure no trouble with the Tax Office, keep a simple diary to confirm your activity and hold onto receipts for airfares and other expenses.
          There’s no limit to the number of trips you can claim. But there must be a genuine purpose to justify the tax deduction.

Australian property tax and expatriate tax expert STEVE DOUGLAS has some good news for Australian taxpayers…

With Australia’s 2007 tax year ending on June 30, Australian taxpayers are now in the midst of a new financial year. And for the first time ever, the top marginal tax rate in Australia only applies to those taxable incomes above $180,000. For many Australian expatriates and intended migrants, this is great news. It’s certainly a far cry from the recent past, where since June 2004 the top rate was applied on incomes above just A$62,500.

This dramatic change was initiated by the Howard Government, reaffirmed in this year’s budget by the new Rudd Government and eagerly welcomed by Australian taxpayers – currently facing financial stress, due to recent interest rate rises and fuel price hikes. The new tax rates (as shown below) became effective as of July 1, 2008, placing an additional A$1,100 per year in the pockets of those Australian residents earning A$80,000 per annum.

Further reductions are scheduled to be introduced on July 1, 2010 – when the 40 percent rate will be reduced to 37 percent. In his election announcements, Prime Minister Rudd has also committed to reducing the top tax rate of 45 percent to 40 percent by July 1, 2013.

And don’t forget, those who earned Australian rental income or moved overseas during the 2007/2008 Australian financial year are now required to lodge an income tax return. Failure to do so can result in fines of A$550 per person, per year. For assistance in keeping your Australian Tax affairs in order, contact Australasian Taxation Services (ATS).