Australian property remains an attractive investment for both foreign buyers and Australian expats, and this is unlikely to change any time soon. This week we explore the key Australian taxes that Australian expats need to be aware of, how they could impact your Australian property investment strategy and what you need to be prepared for.

  1. Non-Resident Income Tax Rates

Different rates of Australian tax apply to income depending on whether you’re an Australian tax resident or not. Note that this Australian tax will only apply to Australian taxable income, which for foreign investors will generally be in the form of rental income. The tax rates that apply are illustrated in the table below:

Australian Expat Tax Rates - Loansuite

As there is no tax-free income allowance for non-residents of Australia for tax purposes, it’s important to consider your gearing strategies when it comes to your property investment strategy. As tax rates start at 32.5% for any positively geared investment property, you need to factor this into your overall financial plan.

Let’s consider the following example

John and Sue are Australian expats living and working in Hong Kong, and own 2 investment properties in Australia that they have rented out. They are both non-residents of Australia for tax purposes and are generating positive income from their property portfolio of A$15,000 per year. This A$15,000 factors in both the rental income being received as well as the costs of owning the properties, or allowable deductions. As John and Sue are non-residents for tax purposes in Australia, they will be liable to pay A$4,875 in tax on the rental income being received.

  1. Foreign Resident Capital Gains Withholding

The taxation rules in Australia now mean that for taxable Australian property a foreign resident capital gains withholding amount of 12.5% is required to be paid to the Australian Tax Office (ATO) by the buyer of the property. Note that this is not an additional tax or levy being imposed, but is the ATO’s way of ensuring that the seller meets their tax obligations when required. This non-resident withholding payment is required when the following criteria are met:

  • The value of the property is A$750,000 or more
  • The seller of the Australian property is a non-resident of Australia for tax purposes

The seller of the property can claim a credit by failing their tax return for the 12.5% payment to the ATO. It’s important to consider here that if you’re looking to upgrade or change your property by completing a purchase and sale at the same time, that the withholding payment could have a significant impact on your strategy. It’s important to seek appropriate advice here and ensure that you have completed the necessary steps to avoid any delays in settlement or penalties being applied.

Let’s consider the following example

Amy and Brian are Australian expats living and working in France, and own an investment property in Sydney, which is currently valued at A$1.8M. They have decided to sell the property and take the profits on their investment. As Amy and Brian are non-residents of Australia for tax purposes, and the property value exceeds A$750,000, the criteria are met for the Foreign Resident Withholding Payment to apply, and therefore the buyer of the property must transfer A$225,000 of the purchase price to the ATO.

  1. Capital Gains Tax Discount

As a tax resident of Australia, you are eligible to use the discounted method of calculating capital gains. This applies for individuals, trusts and complying superannuation funds, with the discount rate of 50% applying to both individuals and trusts, and 33.33% for superannuation funds. This means, for example, that a tax resident of Australia could purchase an investment property, hold the asset for more than 12 months in their own name, and pay tax on only 50% of the capital gain.

The discount used to apply for Australian expats, or non-residents of Australia for tax purposes, also up until 8th May 2012, when it was terminated. It’s important to consider the potential tax implications of owning Australian investment properties while living and working abroad, and ensure that you seek professional advice to ensure you’re not creating unnecessary liabilities.

Let’s consider the following example

Anthony & Crystal lived in Perth before deciding to move abroad to Singapore, and have been living and working offshore for 5 years now. They have never lived in this particular property in Perth and it has only been an investment property, therefore they are not eligible to claim the main residence exemption on a primary residence. As Anthony and Crystal are non-residents of Australia for tax purposes, they would be liable to pay tax on the entire gain from when they departed Australia to their point of sale, and would not be eligible to receive the capital gains tax discount on the sale.

Australian tax should not be frightening or a deterrent to investment, but it’s important to seek professional advice and ensure that your strategy allows for any possible tax implications going forward. With the right advisers on your side, and an investment-savvy mortgage broker, you can ensure that you’re well prepared and aware of any tax implications in the future.


LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

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