Guide to the Tricky Business of Property and Tax for Aussies Living Overseas

Over the years we have helped many expats buy property in Sydney, either for investment or as a future home. Most of our clients never planned to move away from Australia permanently and they often worried about being left behind financially if they didn’t own a property in Sydney. Without having a set date for returning to Australia after living overseas, the idea of knowing where they would one day live can give a sense of certainty and security.

As with all major changes in life, it’s a really good idea to get expert advice and I recommend anybody considering a move or a purchase to check in with their accountant first. Over the last month I have had a few people tell me that they have been negatively impacted by recent changes to Australian tax rules. Suddenly, they no longer feel a sense of certainty about owning property in Sydney.

These conversations have prompted me to find out what the implications are for expat Aussies who want to buy property in Sydney. Here are some of the common questions people need answered:

  • When leaving, should they sell or rent out their home?
  • If they sell, should they buy an investment property in Sydney?
  • Or should they buy a home in the country where they are living?
  • Where will they live when returning to Australia after living overseas?
  • Are there financial penalties for any of these scenarios?

See, here’s the kicker: some people might have to pay capital gains tax even though they haven’t sold! So you can see why it’s best to get your accountant’s advice BEFORE making the decision to move or to buy. It’s a bit late if you don’t get advice until you’ve already bought or at the point of returning to Australia after living overseas.

Some expat Aussies don’t know they might need to pay capital gains tax even if they haven’t sold a property! It’s best to get your accountant’s advice BEFORE making the decision to move or to buy. #realestate #property #BuyersAgent Click To Tweet

I’ve asked Lauren Sinclair, a Chartered Accountant and Technical Tax Advisor, and Michael Ferella, a Certified Practicing Accountant and Director of Momenta Advisors, to explain the implications of either leaving Australia or returning to Australia after living overseas:

Capital Gains Tax Impact of Changing Your Residency Status

When you’re migrating from one country to another, tax may be the last thing on your mind. However, becoming or ceasing to be an Australian resident can have significant capital gains tax consequences. It is therefore important to understand the impact of changing your residency so that potential tax implications can be managed proactively.

Becoming an Australian resident

When an individual becomes an Australian resident for tax purposes, their foreign assets become subject to the Australian Capital Gains Tax rules. That is, when these assets are sold, they will be subject to tax in Australia. The individual is taken to have acquired their foreign assets at the time they became a resident for their market values at that time, regardless of how much the assets cost. When the assets are sold, tax will be payable on the difference between the sale price and the market value at the time the taxpayer became an Australian resident. Accordingly, when an individual becomes an Australian resident, they should obtain market valuations for their foreign assets. It’s worth noting that market valuations do not apply to assets acquired before 20 September 1985, as these assets are not subject to Capital Gains Tax, nor do they apply to assets that are “taxable Australian property”, such as Australian real estate.

 

Ceasing to be an Australian resident

If you cease being an Australian resident, you’re taken to have disposed of assets that are not “taxable Australian property”. Accordingly, if you own a foreign property, you would be deemed to have disposed of the property for its market value on the date your Australian residency ceased. Any capital gain made on the property would be taxable, even if the property hadn’t actually been sold. From a cash flow perspective, it may seem unfair that tax could be payable on unrealised capital gains. Thankfully, individual taxpayers can choose to disregard capital gains and losses made when they stop being a resident. This does not mean that tax will never be payable, it simply means that tax will be deferred until a later time. If an individual chooses to disregard capital gains and losses made when they stop being a resident, their assets are taken to be taxable Australian property until the earlier of:

  • The asset being sold; or
  • the taxpayer again becoming an Australian resident.

The effect of making this choice is that the increase or decrease in the value of the assets from the time the taxpayer ceases being a resident to the time that the asset is sold is also taken into account in working out the capital gains or losses on those assets. Therefore, if you have chosen to disregard your capital gains upon leaving Australia and your assets increase in value, when you later sell those assets, the taxable capital gain would be higher. Furthermore, if your assets are sold while you’re not an Australian resident, the capital gains will be taxed at non-resident tax rates. Access to the 50% CGT discount would also be restricted.

Taxpayers must therefore weigh the pros and cons of deferring the capital gains.

Example: Choosing to disregard gains or losses
A taxpayer may choose to disregard the gains or losses for the following reasons:

  • the taxpayer may plan on resuming their Australian residency later, therefore there is no need to trigger the capital gain earlier than necessary;
  • as the assets have not actually been sold, the taxpayer may not have the cash to pay the tax on any unrealised capital gains at the time that they cease their Australian residency.

Example: Choosing to trigger gains or losses
A taxpayer may choose to trigger the gains or losses for the following reasons:

  • the taxpayer does not plan on returning to Australia and wants to finalise their tax affairs upon leaving the country;
  • the value of the taxpayer’s asset has dropped below the cost base, resulting in a capital loss, on which no tax would be payable in Australia;
  • the deemed disposal would trigger a gain against which they could offset carried forward capital losses;
  • the taxpayer wants to take advantage of the full CGT discount;

Need further information?
If you’d like further information or advice specific to your individual circumstances, please contact either Lauren Sinclair (Tax Advisor) or Michael Ferella (Director) on 02 9606 6749 or via email.

At Good Deeds Property Buyers, our mission is to help people make good property decisions. Part of that is knowing what advice is needed, as well as where and when to get it. If you are returning to Australia after living overseas and would like to find out how we can help you buy the right property, send me an email today.

Further reading:

Capital growth or yield? Which will make you rich?

Expat property buyers: how to overcome your 10 most costly challenges

Investment property – Is it sensible for expats to buy something that might one day become their home?

Published 6 December, 2017

DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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