Latest Update: 5th December 2019 – Unfortunately today the Federal Government passed the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 into law without amendment, resulting in the scrapping of the main residence exemption for non-resident Australian expats.
To read more about this disappointing turn of events click here: Death of the Main Residence Exemption for Australian expats
Original article below:
Over the past few years, Australia’s love affair with property investment has reached an all-time high, particularly among Australian expats. However, it’s still a decision which requires careful consideration.
To help make that decision easier, here are the benefits and drawbacks of property investment for Aussie expats.
Pros of property investment for Aussie expats
Property ownership is still considered “The Great Australian Dream”, especially for those living abroad. Here are some of its many benefits:
Gaining leverage
You can gain significant leverage on your investment by putting down a deposit and borrowing the remaining money with a bank loan.
Bricks and mortar
Unlike shares, property investment gives you a physical reminder of where your money is going. And, as property ownership rates continue to skyrocket, you’ll have a little piece of Australia to call your own.
Blissful ignorance
This benefit may sound confusing at first. As an investor, you don’t have a physical reminder of what the house is worth on any particular day. Generally, you only know the property’s worth when you buy and decide to sell.
Property investment allows you to not worry about daily fluctuations in the real estate market.
Cons of property investment
Despite these benefits, the list of cons has increased. This is largely due to recent changes in tax laws for Aussie expats.
High capital gains tax
Before 2012, if a foreign investor sold an investment property after owning it for at least 12 months, they qualified for a 50% capital gains discount. Now, you will accrue 100% capital gains tax on the property, should its value increase in the time that you are a non-resident.
Additional changes have been proposed (but not yet passed by parliament as at 20th Dec 2018, the date of this article) seeking to remove the main residence CGT exemption for non-residents who sell their former Australian home. To read more about this harsh new proposal, read our earlier article, Main residence exemption scrapped – Australian government lays siege to expat family homes.
Management struggles
Managing your property can be quite difficult, especially if you are based overseas. There can be a virtual laundry list of problems, from struggles with real estate agents, to problems with tenants, and more.
Losing leverage
Many expats fail to examine the current real estate market before investing. If you purchase in a heated market (using a bank loan) and the property’s value should fall, you’re exposed to “negative leverage”.
In this case, you’re exposed to your investment, as well as the value of the home loan. Say, for instance, you made a $50,000 deposit and borrowed $450,000. If the property’s value fell by 20%, you will lose your deposit and owe the bank an additional $50,000.
If you’d like some guidance navigating through the minefield of property investment, simply call or email our tax team at Expat Tax Services today.
- Demystifying PFICs for Australians in the United States - 12/04/2024
- Update: Thailand Clarifies Tax on Foreign Income - 25/11/2023
- Remote Workers – Australia’s Opportunistic Tax Grab - 11/11/2023
