Land Tax on Aussie property

STEVE DOUGLAS outlines the implications of Land Tax on Australian property. 

Do I need to pay Land Tax on my Australian property?
A While the Australian Federal Government is entitled to Income Tax and Capital Gains Tax, State Governments are only entitled to raise levies or duties on activities within their state – such as Land Tax. As such, State Revenue Departments tend to be active in chasing non-payers to recoup arrears.
     Many people living in Australia are unfamiliar with Land Tax as it’s charged only on vacant land, rental property and commercial property rather than the family home. To be exempt you need to be living in the property on the date of determination. And because this date varies state-to-state, it’s difficult to ascertain, especially if you’re living overseas. Some states offer the family home exemption even when you’re abroad provided you’re not renting out the property. However you are still liable for Land Tax if you’re renting out a property and own more than one rental property in the same state. 
     Land Tax is calculated on the cumulative value of all the properties you own in each particular state. So the more property you own, the higher the Land Tax rate and annual cost, which can range from a few hundred to several thousand dollars. Each state has a different Land Tax rate, usually based on the unimproved value of the land of the property. But you can be in a tax-free threshold and not be liable for Land Tax if you own just one more property above your family home. This ruling is beneficial if you have properties in a few Australian states, since you get a new threshold for each state. Also, the Land Tax on an apartment is substantially less when compared with that of a house. This is because the unimproved land value is shared between multiple apartment owners, creating a lower individual value.
     If you believe you 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. If you don’t, the penalty can be expensive.
     Land Tax isn’t a deterrent to a purchase, it’s just a nuisance. But it can become costly if you’ve built a substantial property portfolio in one state, so always take Land Tax into consideration when calculating your cash flow on a rental property. The expense of Land Tax shouldn’t make you change your investment decisionas the capital growth of any worthwhile property should justify additional costs. But always take Land Tax into consideration when reviewing your investment strategy. To keep your taxable land value at a manageable level, you may want to allow for multi-state property ownership and a sensible mix of houses and apartments.
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Posted by smats Wed, 01 Jun 2011 07:37:00 GMT

The pros & cons of interest-only borrowing

STEVE DOUGLAS highlights the pros and cons of an interest-only loan repayment model.

Q Is it wise to opt for “interest-only” repayments on my Australian property loan?
A Interest-only loans offer lower monthly repayments, benefiting immediate cash flow. But it’s not best to always be in debt. It’s far more important to be debt free, or low in debt, when living in your Australia property – not while it’s being rented out.
Home mortgages “Down Under” are expensive, because there’s no tax relief available for interest costs on private homes. But non-residents renting out their Australian property assets do enjoy a complete tax deduction. However, any additional repayments to reduce the balance of your loan are not tax deductable.
     While a property is collecting rent in Australia, any loan to help with its purchase is fully tax-deductable even if you’ve lived in the home in the past. With tax rates starting at 29 percent for non-residents, this tax deduction is very welcome. But it’s best to only repay the loan when you decide to move into the property yourself. Paying a loan off earlier can cause grief upon your return, should you choose to live in a different property to the one you’ve been paying off. You don’t want to be forced to sell a quality investment because you need access to cash to service a loan on a new property.
Paying off the principal of any loan is an inefficient use of your money, as long as the property is being rented. If your loan is sourced from Australia, an alternative to repaying it is to use an “offset” account. This links your savings to your loan, only charging interest on the net balance. It achieves similar savings as extra repayments, but doesn’t change the loan balance. This gives you greater flexibility, as you can withdraw funds from the offset account if the option of a better property arises at
a later date.
     The overall performance of your investment will improve when you have a higher loan against it. This is due to a combination of reduced taxes and leveraging benefits, which can sometimes almost double the annual rate of return achieved after tax. As a result, delaying the decision to reduce your loan until the day you move in could prove to be a very rewarding decision, strengthening your financial position upon your return to Australia.
For a quick demonstration on the cost advantages of reducing your loan, taxation issues and investment performance considerations, check out the free, customised, online Property Tax Estimator at

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Posted by smats Tue, 26 Apr 2011 01:17:00 GMT

Time your return to Australia, to maximise tax benefits.

Returning to Australia and want to enjoy the best tax benefits? STEVE DOUGLAS reveals timing is everything.

Q From a tax perspective, when’s the best time to return to Australia?
A It’s not often you have the luxury to choose when to head back to Australia. Factors such as the start date of your Australian-based employment, your child’s school term and finding a place to live usually prove to be a challenge. But if you’ve had the good fortune to overcome all these issues and have set a date for your return, here are the main issues you may be affected by – depending on your timing – from an Australian taxation perspective.
Full year = bigger tax credits If you’ve made the most of your time abroad and acquired an Australian rental property, you may have accumulated tax losses or credits which you can use to reduce your salary tax. Australia’s marginal tax scheme works on the basis: the higher your income, the higher the tax rate. So it’s better to have a full year’s income to use against your credits to enjoy tax savings at a higher rate, rather than a lower rate. This makes a world of difference, because you’ll be able to get your returns in the earlier part of the tax year – usually between July and September.
Your super return If you return to Australia late in the financial year, say May or June, one way to preserve your tax credits is to make an additional contribution to an approved Australian Superannuation scheme. This offsets your income for the month you return and the next. It also allows you to carry your credits forward to the next financial year. However, while you’ll enjoy substantial savings, your family’s immediate cash flow may be affected.
A good day on the Stock Market Upon relocation to Australia, all offshore assets (property or shares) and any Australian shares become taxable. But this only applies to the excess above the market value on your day of return. As such, it’s always better to return to Australia during a time when asset values are higher. If prices remain low, postpone your arrival until things improve. Realistically this may not be easy, but it’s certainly worth considering.
Home improvements If you’re moving back into your own property which you previously rented out, you can claim costs of bringing the property “back to standard”. This includes painting, garden maintenance and the general upkeep of the property, but not significant items such as carpets or kitchen upgrades. The final rental maintenance should be carried out within a reasonable period after the tenancy ends, but can be done once you’ve moved in and is fully deductable from your tax.

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Posted by smats Fri, 25 Mar 2011 06:54:00 GMT

How to use Queensland flood donations to offset your tax

STEVE DOUGLAS explains how Australian charitable donations can be offset against income tax.

Can I claim taxes on my donation to the Queensland Flood Relief Appeal?
The Victorian bushfires of 2009 and the current Queensland floods are a reminder of Mother Nature’s power over us and how helpless we are when exposed to her wrath. But such tragic events also bear witness to the best of humanity – our ability to cope with adversity, overcome misfortune, rebuild, recover and most importantly, our willingness to help our fellow man.
     The Australian Government, like almost every other Government, recognises the importance donation and charity play in the modern world. As such, any contribution to an Australian-registered charity is allowed as a tax deduction against your Australian income tax in the financial year the payment is made. This is in recognition of the importance
of your donation and is also a manner of appreciation for your gesture.
     But in order to claim a donation you first need to have a taxable income to offset it against. If you’re an Australian living overseas, it’s unlikely you’ll have any taxable income as your offshore salary is not taxed in Australia. And if you have an Australian rental property with a sensible level of finance on it, you might realise you’re in a tax-loss position each year, with no tax payable in Australia and some tax benefits carrying forward into the future. If this is the case, donating to a charity will not improve your Australian tax position, as it can’t increase any tax-loss position and will be ignored once you have an income less than zero in your tax year.
     If you have an Australian rental property generating more income than your ownership expenses, including interest and depreciation, the donation can be used to reduce your net rental income and lower your annual tax liability. To claim the deduction in the current financial year, the donation needs to be paid and cleared by June 30, which is Australia’s financial year-end. Remember to keep the receipt as proof of payment.

     Of course, the decision to make a donation should never be based on the ability to offset tax. Rather it should be on the importance of the contribution. Many of us living overseas are fortunate to experience favourable circumstances, so it’s fair to lend a helping hand to the less fortunate, especially when their circumstances are borne from events out of their control. In these trying times, let’s all dig deeper to help those in need.

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Posted by smats Wed, 23 Feb 2011 07:23:00 GMT

Capitalise on the strong Aussie dollar

Don’t shy away from investing in the strong Aussie dollar, cash in on it – advises STEVE DOUGLAS.

Is it wise to wait for the strong Australian dollar to weaken before investing in Australian property?
A There’s always an excuse –market bubbles, interest rates, or fluctuating currency – to delay a decision to invest. But the cost of procrastination is more than you think.
     From a taxation perspective, the many incentives on offer to reduce tax on future Australian salary require time to accrue and achieve the best result. And from an investment perspective, the Australian property market continues to achieve sound and stable growth, so delaying entry can prove more costly than any potential currency cost. Quality lending can in fact act as a natural currency hedge, by minimising the deposit required and your exposure to high currency cost on the funds required, rather than the full purchase value. When using sensible lending, your cash outlay is limited to a 20 percent deposit, plus a five percent allowance for stamp duty and legal fees.
     Depending on which direction you think the currency might move, or how much it may be overvalued, it’s important to figure out what’s holding you back. Say you purchase an A$500,000 property, for which you require 25 percent for deposit and costs, with the remainder covered by an Australian dollar loan. If you feel the Australian dollar is currently overvalued by 10 percent and would improve that much in the next 12 months, then the additional cost of acting now would be 10 percent of the cash required (A$125,000), which is A$12,500. So if you wait a year for the currency to improve – and assuming it does – you’d be better off by A$12,500. But if the property grows by an average rate of seven percent per annum over the next year, it will be more expensive. Because when calculated on the total purchase price of A$500,000, your property would be worth A$35,000 more in 12 months if it achieves average growth. Hence the net cost of delay is the potential increase in property value – A$35,000 less the assumed currency cost of A$12,500, resulting in A$22,500. Remember, this could be a cost or an additional profit.

     The cost of delay is often far greater than any potential currency loss. You can always make additional reductions to your loan when you feel the Australian dollar has reached a better value. And an Australian property with available equity can provide a full hedge on your next purchase, as the deposit can be borrowed against your current property holdings. This ensures you don’t need to convert any currency, so you won’t experience issues with currency fluctuations.


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Posted by smats Wed, 26 Jan 2011 08:11:00 GMT

Fixed or variable interest rates – which works best in Australia?

STEVE DOUGLAS suggests ways to stay on top of Australia’s rising interest rates.

Q  Australia’s interest rates are rising – should I switch my loan from a variable interest rate to a fixed rate?
Australia’s recent rise in interest rates has catapulted it above most other global markets. With the Reserve Bank of Australia’s latest rise in November 2010, the base lending rate in Australia is now 4.75 percent per annum and the standard lending rate is approximately 7.8 percent per annum, inclusive of the banks’ margins. Surprisingly, this remains at the lower end of historic averages.
     It’s possible to fix your interest rate over a specified period – usually up to five years – which means any further increase wouldn’t affect you. This is useful if you want the certainty of knowing your interest costs regardless of changes. Or if you believe rates will rise even further and want to save money, since your fixed rate will remain unchanged. Certainty has its own value. Most people aren’t concerned about the savings but do prefer to have a set expense. But you’re still taking a chance, albeit on a wider platform. The current three-year fixed rate is 7.09 percent per annum, which is a considerable saving on the standard variable rate. Additionally, most banks offer substantial discounts to valued customers. After allowing for discounts, a typical Australian-dollar loan should near 6.97 percent per annum narrowing the gap between fixed and variable interest rates.
     If you fix your interest rate you’re hoping rates will continue to rise or stay the same. If rates reduce, fixing your terms could cost you more in the long run since you’re locked into a potentially higher rate. And cancelling a fixed-rate agreement comes at a risk of incurring early repayment penalties.
     It’s challenging to predict which way rates will go, but observing market movements can make your decision easier. Many factors influence interest rates including health of the economy, inflation, exchange rates and the availability of capital. In general, when the fixed rate is lower than the variable, the market is suggesting rates will remain the same or reduce. When the fixed rate is higher than the variable, the market is predicting rates will rise. The most important issue is to ensure you have the most cost-efficient loan available.
     Australasian Taxation Services’ Specialist Mortgage division can review your loan and compare it with what’s on offer and provides current variable and fixed interest rate updates.
Call to arrange a free, no-obligation assessment.


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Posted by smats Tue, 21 Dec 2010 05:05:00 GMT

Capital Gains Tax on Aussie property

STEVE DOUGLAS urge you to know your entitlements before selling your Aussie property, to enjoy maximum tax benefits.

Q. Once I move back to Australia I intend on living in my property before selling it. How long do I have to live there before it’s tax free?

Under Australian Capital Gains Tax rules, your family home or Principal Place of Residence is free of Capital Gains Tax on the condition you’ve not rented it out for a while. In such a case, tax-free status is only allowed on a pro-rata basis. Your home is tax free only for the time you resided there, the rented period remains taxable. For example, if you rented out your property for four years and moved back in for one year prior to selling, only one-fifth of any gain is tax free; the remainder taxable. But as long as you’ve owned the property for more than 12 months, you’re still entitled to the usual half tax-free allowance on the taxable portion.
     While there’s no minimum time for living in the property, the authenticity of the period will have to be supported with documentation such as electrical accounts, removalists’ invoices, license address and electoral roll address. You might also be able to take advantage of some special rule. If you’ve lived in the property prior to moving abroad or renting it out, it can still be considered your primary residence for up to six years even if you rented it out during this period. In such cases you’ll have to obtain a valuation when you originally move out, which becomes your new cost base for tax purposes. So any capital gains from the original purchase price up to the new valuation will remain tax free. If you sell the property within the six years no tax is applicable. But if sold after, it will be pro-rata from the time you left, to the time of sale. This could be a minor cost – so don’t sell just to protect yourself against potential tax issues.
     For Australian tax purposes, you can only nominate the property as your home if you’ve actually lived in the property while being an Aussie resident. If you move back into the property, the pro-rata tax-free period will be increased even further. While living abroad, protect yourself against Capital Gains Tax through sensible planning – such as further acquisition and debt management. Don’t be afraid of its effects as Australian tax rates have recently reduced significantly. Even the full tax cost may be far less than you thought it might be. But if you can legally reduce the potential cost, this should be investigated and considered.

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Posted by smats Wed, 24 Nov 2010 08:19:00 GMT

Tax on foreign income

STEVE DOUGLAS reveals the importance of confirming Resident or Non-resident status in Australia, for tax purposes.

Q. As an Australian citizen working in Singapore, is my income taxable in Australia?

A. In July 2009 the Rudd Labour Government changed the process of determining taxes on foreign income earned by Australian Resident taxpayers living aboard. Under the old rules, if an Australian worked abroad for more than 90 consecutive days and already paid tax in the country of earning, their income was exempt from being taxed in Australia. But now, foreign income is fully taxed in Australia, with a credit given for tax paid in the country of earning. However, these rule apply only to Australian Resident taxpayers – Australian citizens temporarily working overseas. If you have confirmed Non-resident status, such rules do not apply.
The Australian Taxation Office (ATO) has recently increased its audit activity in this specific area, sending letters to all Australians working abroad. While these letters are intended to be “soft” audit checks on the accuracy of your income tax return, they can be confusing. The letter suggests your residency status has been found to be as an Australian Resident and therefore, all offshore income is automatically taxable and inaction on your part will result in additional costs. If you have an intention to remain overseas in the long term and receive such a letter, do the following immediately: 
•   Contact the ATO, preferably through your tax agent.
•   Make it clear you’re a Non-resident for tax purposes and therefore your foreign income is not taxable in Australia. You will not be required to alter past lodged returns.
•   Submit a completed Residency questionnaire to confirm your claim. Once this is done, the matter will be concluded in
your favour.

     If you decide not to respond to the questionnaire, the ATO will issue an amended assessment. This will include any income they’re aware of – including money transfers back to Australia – and you may be imposed with a sizeable tax and penalty cost. While you can dispute this matter, it will be a long and troublesome process – easily avoidable by confirming Non-residency status at the time you receive the questionnaire.     
     The ATO is easy to deal with on these matters as long as you remain attentive, cooperative and polite, so don’t feel threatened by the difficult but mandatory administrative process. If you have any doubts or concerns about your situation ask your tax advisor for advice, or contact ATS for assistance.



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Posted by smats Tue, 09 Nov 2010 07:05:00 GMT

Property purchase rules

 Australian property tax and expatriate tax expert STEVE DOUGLAS explains why setting up a company to purchase property requires careful consideration.

Q. I’m thinking of buying a property in Australia. Should I set up a company to do this?

A. Using a legal structure to purchase property is a very personal decision and should be based on a number of issues. These include legal protection, succession planning, transferability – and of course, taxation. As a general rule it’s not ideal, as the company will not benefit from the 50 percent Tax Exemption on Capital Gains. If a legal structure is deemed necessary, a Unit Trust or Family Trust would be more appropriate.
     The nature of the property also makes a difference. If it’s commercial rather than residential, a legal structure may be more suitable – particularly when multiple owners are coming together to make the purchase. In this instance a record of a defined unit allocation can help to determine each individual’s ownership of the asset. With residential property, it’s usually best to make an acquisition in your personal name. This is because if you can keep the debt levels high on the property during the time rent is collected, it can prove very tax effective – both during your time abroad and upon your return to Australia. Buying in your own name is also essential if you wish to take advantage of the Principal Residence Exemption on Capital Gains Tax rule. This can only apply if you live in the property some time in the future, upon your return to Australia.
     Setting up a legal structure may also incur the loss of any benefits in building up tax credits on excess holding costs. In such an instance, any tax losses can become trapped in the entity, disenabling you to offset any personal salary income against these losses, upon your return to Australia.
In all cases, the use of a structure should be carefully considered. If your only reason is to obtain an artificial tax benefit – which some schemes and Hybrid Trusts promote – you may find yourself in trouble with the authorities. The
Australian Tax Office has the power to look through and void the entity for tax purposes.
The current system and legal incentives for purchases as an individual already promotes the ability for you to enjoy a tax-free investment. So if tax avoidance is your sole motivation, using a legal entity could prove detrimental – you may just outsmart yourself!


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Posted by smats Mon, 30 Aug 2010 09:39:00 GMT

Should you declare your Aussie property income?

Australian property tax and expatriate tax expert STEVE DOUGLAS explains how Aussie property owners can determine if they need to submit an Australian tax return.

Q. I’m an Australian living in Singapore and recently rented out a property I own back home, so I understand I’ll be liable for Australian tax. Will the Australian Tax Office calculate tax owed on a base income of my Australian rent earnings, or on my overseas earnings?


A. Usually when you’re genuinely living outside of Australia for an indefinite or extended period, you’re considered Non Resident in Australia for tax purposes – regardless of the fact you may be a citizen. When this occurs, the only taxable activity is usually the rental property income and any earnings from services performed in Australia. You do not need to declare your offshore earnings to the Australian Taxation Office.  

If you’re only in Singapore on a temporary assignment, you may still be classed as Resident for tax in Australia. In this instance you’d need to declare all offshore Income and you’ll receive a credit for any Foreign Tax paid on it, when the Australian tax payable is calculated. This only applies if you intend to remain overseas for the short-term, so you need to be clear on your long-term plans.

Legally, if you’re earning rental income in Australia, you’re required to lodge a tax return each year to declare income earned and detail any expenses relating to the property – such as interest, agent fees, maintenance, rates and even travel expenses for inspection. Usually once all expenses are deducted there’s a shortfall. This shortfall can then be carried forward into future years when you return home, offsetting rental profits, capital gains on sale, or even income tax on an Australian-earned salary. You may also qualify for special building write-offs and depreciation allowances on your property, which can further enhance the tax effectiveness of your investment. Such incentives make purchasing Australian property an attractive proposition and it shouldn’t be underestimated as a powerful financial planning option.

If you choose to lodge your tax return yourself, the due date is October 31 of each year. If a Registered Tax Agent, such as ATS, prepares it on your behalf, you’ll usually enjoy an extension for submission until April of the following year. Make sure you do lodge your Australian tax return each year. The penalty for not doing so is A$550 per year per person and you may lose out on the tax benefits you’re rightfully entitled to.

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Posted by smats Mon, 26 Jul 2010 03:48:00 GMT

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Australian Tax & Property Advice

With Steve Douglas, specialising in taxation & migration planning



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.

Contact Info

Australasian Taxation
Services Pty Ltd

10 Jalan Besar
#17-01 Sim Lim Tower

Singapore 208787


Tel: 6293 3858 

Fax: 6293 4332