Property Analysis & Modelling for Australian Expats
Are you familiar with the financial pitfalls and opportunities of property?
Australian Real Estate (property) is a popular asset class to own amongst Australians as it is seen as a reliable and advantageous way to build wealth. Property Advice for Australian Expats, provided by a Financial Adviser can be a helpful resource when strategising property-related objectives and involves:
Empowering you to make informed decisions about purchasing, owning or selling property
Ensuring your property ownership structure as well the purchase or sale aligns with your overall financial objectives
Projecting and modelling the property into the future to assess the property from an investment point of view
Optimising your property portfolio as a non-resident for tax planning purposes
Assessing your property's income tax and cash flow position, Capital Gains Tax (CGT) advice, debt restructuring and guidance on the optimal timing for a sale or purchase
How we can help you make the most of your property as an Australian Expat
When a non-resident Australian Expat owns property in Australia, care must be taken to appropriately manage the property from a tax planning point of view. This is because the tax rules that apply to an Expat owning property differ from those residing in Australia with property.
When Expats move overseas, they often decide to convert property that was once their main residence into a rental/investment property. The tax rates applicable to rental income are more punitive for an Expat who is a non-resident. Further, if an Expat sells an Australian property while they reside overseas, their eligibility for capital gains tax (CGT) concessions such as the main residence exemption and 50% CGT Discount may also be limited.
Runway Wealth Management offers comprehensive property advice for Australian Expats including analysis and modelling services to give you peace of mind when managing Australian property assets. Such services may include:
TAX & CASH FLOW ANALYSIS
We carry out a detailed analysis of your property portfolio to extract important financial information such as Australian income tax position (positively geared or negatively geared), cash flow position (cash flow positive or negative), rental yield (return), and loan-to-value ratio. This information is used to model and project the property into the long term, allowing you to understand your property’s financial position and make informed decisions about your property.
REDUCE CAPITAL GAINS TAX (CGT) ON SALE
If you are considering selling your property, we can provide advice to help reduce any capital gains tax (CGT) associated with the sale through various strategies. This may include advice on the optimal timing of the sale, determining eligibility for capital gains tax concessions, using superannuation contributions to offset the capital gains, or utilising carried forward capital or income losses.
DEBT MANAGEMENT & RESTRUCTURING
We offer advice on managing loans secured by your property to ensure you leverage your tax and financial position. This may include advice on utilising offset accounts, redraw facilities, or equity in an existing property to aid the purchase of additional property or other investments such as shares.
Can Australians who are a non-resident for tax purposes buy property in Australia?
Yes, Australians who are a non-resident for tax purposes can buy property in Australia while living overseas. However, living overseas may impact: • Lending criteria: Lenders may apply stricter borrowing conditions. They may assess foreign income differently, require higher deposits and offer higher interest rates. • Tax landscape: Different rules apply to non-residents, particularly around capital gains tax and income from rentals. • Time zones and distance: Being in a different country may make managing inspections, auctions and legal paperwork more difficult.
Can a non-resident for Australian tax purposes sell their Australian property?
Yes, a non-resident for Australian tax purposes can sell property in Australia. However, the tax treatment of property assets often changes when you become a non-resident. Non-residents generally lose access to key capital gains tax (CGT) concessions like the 50% discount and the main residence exemption, and gains can be taxed under the foreign resident tax rates. Because of this, Australian Expats should consider whether selling property as a non-resident is suitable to their circumstances and if so, explore strategies to reduce their CGT liability through making a tax-deductible super contribution, using the carry-forward contribution rules or utilising income or capital losses to offset any gains, if appropriate.
Does negative gearing still work for Australian Expats?
Yes, negative gearing can still work for Australian Expats. If you own an Australian investment property while living overseas, any rental income is still taxable in Australia, and you can claim eligible deductions. If the property is negatively geared, the loss is calculated in the same way as for Australian residents. However, if you do not have enough Australian-sourced income, you may not be able to fully offset those losses in the same financial year. In those cases, the unused losses are generally carried forward to future years.
How can an Australian Expat Financial Adviser help with investing in property?
An Australian Expat Financial Adviser helps with investing in property by ensuring decisions align with broader financial goals. This includes guidance on whether to buy, hold, or sell property assets, structuring ownership correctly, modelling future outcomes and integrating tax and wealth strategies. A key part of this is a detailed analysis and forward planning, including: • reviewing cash flow, tax position, rental yield, growth and loan metrics; • identifying ways to manage or reduce CGT; and • advising on debt structuring, including the use of offsets, redraws, and equity for further investment. Therefore, allowing Australian Expats investing in property to make informed decisions based on data, rather than assumptions.
Tips to consider for Australian Expats & Property
Australian rental income subject to 30% tax
Rental income received from property located in Australia is considered Australian-sourced income. This means it may be subject to tax by the ATO, even if you reside overseas. As a non-resident Australian Expat, special foreign resident tax rates apply, which preclude you from the tax-free threshold of $18,200. This results in rental income up to $135,000 being subject to a tax rate of 30%. Australian Expats are still eligible to claim the associated running expenses incurred from owning the property. Hence, Expats should consider maximising their available tax deductions. This may include a depreciation schedule. Other considerations may include limiting funds in an offset account or ceasing additional loan repayments, and utilising tax-deductible contributions to their Australian superannuation fund.
Offset Account vs Redraw Facility
If you are considering paying down debt but also want the option to access the funds later, an offset account or redraw facility are common features of Australian mortgages. While both these features have the effect of reducing your loan amount, each has very different tax implications should the funds be accessed later. If funds are accessed from a redraw facility, the interest on the loan may no longer be tax deductible (depending on what the funds are used for). Therefore, potentially forgoing years of future tax benefits. For this reason, it is critical to plan ahead when contemplating the use of a redraw or offset account.
Using Equity to buy additional investments
Did you know you could use the equity in your existing property to fund your investment in other assets? This is done by accessing the useable equity in your property. 'Useable equity’ is calculated as the equity in your property that is above 20% of the property’s value (e.g. a property worth $1 million with a $500K loan would have ‘useable equity’ of $300K). When you access this equity, it is often referred to as an equity loan/release. Utilising your ‘useable equity’ to fund the purchase of other investable assets such as shares or property is a common strategy used to build wealth. If you decide to access the useable equity to fund the purchase of an investment property, the interest on the loan may be tax-deductible, providing a tax benefit.
Foreign Resident Capital Gains Withholding (FRCGW)
FRCGW applies when a non-resident Australian Expat sells a property in Australia, regardless of the sale price. Where this is the case, 15% of the contract price is withheld and remitted to the ATO at settlement on behalf of the non-resident vendor. The FRCGW acts as a tax credit that the Australian Expat can utilise upon filing their Australian tax return. Australian Expats should be aware of this when selling property in Australia to ensure they are prepared and plan to receive reduced sale proceeds as a result of the amount withheld under FRCGW.
General Advice Disclaimer
The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.