I have one residential property (primary residential) and one investment property in Australia. I am contemplating going overseas for work. Both have mortgage of 300K – IP is currently rented at 340 per week. Can I use the rent on my primary residential property to off set the loss on the investment property? I am assuming a rent of 340 per week on that. Calculation –Interest = 27000 (300K @9%) + 2500 (agent,insurance etc) = 29500 Income =Rent = 17680(IP) + 17680(Residence) = 35360.
I am not going to make my residential property an IP because I intend to sell lit after 6 years. I will take a loss of approx 25000 per year but I am fine with that Since I think the property price (both ) will rise.
Once I become a non resident 1) Do I have to do a tax return
2) Do you see any problem in the above set-up.
Regards
AnkitHi Ankit l am new to this forum however l am an Australian expat currently living and working overseas. lf you decide to work overseas make sure you get a statement from the Tax office that you are a "non resident for taxation purposes". Your tax liability depends greatly if you deemed to be a non resident or not.
As a non resident of Australia you have to submit a tax return for every dollar earn't in Australia and it will be taxed at the highest marginal tax rate. l suggest you find a good accountant who deals specifically with Expats.Regards
GarryThis is very complex. You will be earning an income in Australia from the rent, although you may have deductions to offset this, so you will need to lodge a tax return. You will also need to declare you overeas income. Whether you are tax more will depend on if there is a double tax agreement with the country you are working in.
Whether you are a on resident for tax purposes depends on a number of factors including where you permanent home is, how long you will be overseas etc etc. Non residents don't receive the tax free thresholds and pay 30% tax from $1 in income.
And did you know that you can rent out your main residence for up to 6 years, claim all costs and still sell it CGT free – $25,000 pa x 6 is a big loss of potential income!
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I am returning to India – family reasons. But the whole thing rests on me offsetting my rental income from residential property against income from IP. Current thinking is — I pay income tax on what I earn in Australia in Australia. In India I just pay income tax on what I earn in India from my job their. So my Australian tax return will be income =rent =35360 . Loss will be (1 investment property expenses ) = 29500. Therefore total income = (35500 – 29500) = 6000 (which @30% tax rate since I will be a non resident) =1800 tax I have to pay in Australia. Loss of 25000 dollars is for maintaining both properties (IP and investment).
Also I had paid off my residential property – I have recently extracted the entire amount to buy property overseas. So it is like paying interest to borrow. Now for the wishful thinking part. …Houses are in Watsonia and Greensborough in Melbourne – council is building a big project @300million their. Both the houses are currently valued at 360 each. 1) I would expect them to be 550-600K in 6 years. 2) if the interest rates reduce a bit and rents go up the 25000 dollar loss will reduce to more like 10-15000 dollar loss. I briefly had a chat with my tax agent but did not get much insight ( he is new as well).. I am very close to making the decision on this…Here is the advice I am after 1) Does any one see any show stoppers in the strategy2) What approvals do I need from the tax department3) Dual tax etc which was mentioed in the earlier post .. seems funny to me which I don’t understand.
Regards
Ankith
Hello ankitjain
Your current tax agent is not adequate for your needs. You need to go to an international accountant for advice before you do anything else. Someone like KPMG or maybe someone who you know also has offices in India. Leaving Australia with no intention of returning can trigger a CG event which would be a pity as you will then miss out on up to 6 years of CGT free growth on your home and may also need to pay CGT before you leave. You need advice.
Here is a general description of what/why double tax agreements
http://en.wikipedia.org/wiki/Tax_treaty
However each agreement can be different so you need advice on the specific agreement between Australia and India.
It's a great pity that your home had been paid off and that the current mortgage is to be used to buy property in India. I very much doubt that the interest on this loan is tax deductible in Australia but maybe in India? This will depend on the tax laws in India and I guess what you use the funds for. Something to ask the accountant. Also I don't know the interest rates in India and whether you will be in a position to borrow money there but are you sure lending against your home is the cheapest source of finance for India?
My calculations for your income and expenses here in Australia is a little different to yours.
Income 2 x rental properties ($340/wk each) $35,360
Expenses Interest on one mortgage (9% of $300K) $27,000
Repairs/agent fees/insurance/rates/vacancies $ 7,072
etc etc. is usually around 20% of the rentSo assuming these 2 properties are your only Australian income your taxable income should be about $1290 meaning you will pay about $390 tax.
However, don't forget you will also need to pay the $27,000 interest on the loan on your home.
A quick google bought up the following site about home loans in India. Maybe you can have a play to see what you could borrow and at what interest rates there.
I am not an accountant. Just an expat who went through the same questions once upon a time.
Hope this is of some help.
ElkaMore reading for you.
http://www.ato.gov.au/taxprofessionals/content.asp?doc=/Content/64045.htm
Elka, Very informative posts. I definitely need to get a new tax agent – initially looking through the link — It seems to show it is not too good for me. I will respond after going through it in detail. Thanks a lot
Elka, This requires proper investigation and may require rethinking the entire strategy. I will take a week to respond to this one fully (weekdays is busy). Initial thoughts….
- It is likely that my going overseas may trigger a CG event.
- On the IP I was always going to pay capital gains tax. The real concern is the residential property.
- I would be extremely reluctant to sell the house – Only if it becomes cost neutral over a couple of years would I sell my house.
- My calculation prior to this post was
A loss of 25000 per year which would progressively decrease. Appreciation in property value per year @5%= ( 350000@5%(PPOR) +350000@5%@0.85(IP)) = 32375. If it increased more than 5 % then it would be where i would win. However now if I have to pay CGT on my PPOR then the whole exercise may become cost neutral.
Question : I am an Australian citizen — Say I go overseas and come back for one month after 5 years. Do I become a resident again (and use my current residence with tenants moved out as PPOR) or is it only after I live again in Australia for 6 months in a taxation year do I become a Australian resident for tax purposes.
Who does house valuations to determine house value for CG purposes – Can it be a real estate agent or a bank? I would only pay CGT when I sell the house right?I would be very reluctant to sell my house. I need to understand the system and in a lawful,correct (and right by the tax office) manner understand how to maximize my returns.
Thanks for your post Elka – appreciate them.
Hello ankitjain
You can of cause leave Australia intending to return one day ( 2 – 5 years? ) . If you never come back to live, well… life is full of surprises.
http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT2650/NAT/ATO/00001
One question you will want to ask an accountant is can you be a non resident for tax purposes but still retain a PPOR in Australia if your intention is to return.
If so, would this absolve you of any CGT liability on your home if you sell it within 6 years.
The second paragraph under the heading “Capital gains and going overseas” on the page of the ATO site I posted above relates mostly to shares and I think collectibles. If you don’t hold any of these then this is not really of interest to you.
GCT ( if applicable) is only payable on a property after it’s sold…. not when you leave.
A valuation is usually done by a valuer who you can employ.
Regarding your calculations.
I think one of the difference between your calculations and mine is that you have catered for only $2500 for expenses related to both properties. This is for rates, water, insurance, repairs, vacancies and agents fees. This is much too little.
The other difference if one of perspective. You view the non tax deductible interest on your home ( $27,000) as a “loss” in Australia whereas I see it as a cost of buying property in India which needs to be justified/compared to the cost of this money in India.
Cheers
Elka
ankitjain wrote:Also I had paid off my residential property – I have recently extracted the entire amount to buy property overseas.What is the purpose of the property overseas (india I assume) ? Will you be receiving income on it. If you become a non resident for tax purposes this Income will be taxed in India and any deduction for interest will be related to that property not the PPOR in Australia. If the property in India is for living in I am reasonably sure that you won't be able to use the 6 year rule. Remember deductibility of interest relates to the purpose of borrowing not the asset it is secured against.
If you become a non resident for tax purposes in Australia the income and costs in Australia on property still require an AUS tax return. If by chance the expenses are more than the income from rent the loss will be carried forward till you eanr positive income in Australia again.
Property and other investments like shares and managed funds are treated differently when you become a non resident for tax purposes. If you have any other investments check out the ramifications for these as well.
Cashflow may be more of an issue than tax – check for rules regarding repatriating income from India to Australia if these are needed to cover income shortfalls.
These are a few things picked up from working with other expats.
Good advice is like foundations to your house – be prepared to pay for good advice that the provider can be held accountable for. Getting it wrong could be very costly.
This should not be considered tax advice – seek professional assistance on this one.
Great read all this. My hypathetical question is kinda of different. What if i go travelling with family overseas to live with my wifes family and we end up staying there for a few years and then we come back here for say 6 months then go back there to live. We will will not be working as we will have enough money to survive.
If I have a PPOR and investment properties here in Australian and I rent them out will i be taxed on the rental income or be charged Capital gains tax?
What are the implications if we go away and then come back…..
Family situation is different but the tax situation would be the same. I am still in Australia – sticking to my safe job here in the current economic climate. Waiting for things (financial crisis) to clam down a bit – plan still remains the same. Calculations have changed now with interest rate at 5%. If I fix now for 3 years – it would be three years of cost neutral investment property. Would be interested in finding out what you find because I still am planning to move J
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