Hi all
My wife and I are moving overseas in the next couple of months and are deliberating on whether we should sell our investment property.
Currently our property is positively geared once you take into account tax deductions, deprecations etc. However by moving overseas my understanding is that this all goes and we are simply left the with a property whose rental income is insufficient to cover the interest repayments (interest only loan). The capital growth is respectable but not sufficient IMO to cover the losses, so therefore my question is – do we sell or is there some other way to be smart and keep this property?
We are most likely to be back in Oz within the next three years.
If we do sell are the following assumptions / understandings correct?
Losses incurred this financial year can be offset against what I earn in the next couple of months before I go?
Losses include – deprecation, selling costs, capital gains etc?Any help would be greatly appreciated.
Manic
Hello Manic
When you say that tax deductions and depreciation goes that’s not stricktly speaking true.
The thing is that without any other income in Australia to offset this against, you will be making a loss each year. I am not an accountant but I believe that you can carry this loss for a number of years and offset it against your income when you get back?
I don’t know your circumstances.
The best advise that I can give you is go to a very savvy accountant who is also well versed with international tax issues and check out your options. They may also be able to save you heaps of tax in the country you will be working in overseas. It all depends on your situation and what you will be doing overseas.
You may need to think about things like… will you be keeping your Oz residency status while you are overseas. The fact that you think you are coming back in 3 years is no problem. Your allowed to change your mind. There are pros and cons for tax purposes of staying an OZ resident and again it depends on your situation.
Personally II would not sell my IP in your circumstances. Also I think that all the losses you mentioned are capital loses and can only be offset again capital gains. Again, I am no accountant, but seriously think you need to consult one.
Hope this helps [smiling]
ElkaThanks for the response… naturally the question I need to ask is who can recommend a good savvy accountant that deals in these matters?
The one that I currently have focuses mainly on filing tax returns.
Manic
Hello again
When I went overseas to work the first time I went to what was then called Touche Ross and has now become Deloitte Touche Tohmatsu.
I see you are from Victoria so if you are in Melbourne they have an office in the city at
180 Lonsdale St
Phone Number: +61 3 9208 7000
Fax Number: +61 3 9208 7001They are not cheap but I know that they saved me heaps of tax and were well worth the fee but again it’s very dependent on your situation. It may be worth giving them a call to see what their fee is for a consultaion.
There are other international accountants but I just can’t think of anyone else at the moment. Maybe you could search the web for more that have offices in Melbourne.
Good luck
ElkaYou should consider whether the country you are going to has a double tax agreement with Aus. If you move to a country that has no CGT and no tax agreement with Aus it maybe worth while waiting untill you have moved untill you sell, as in this case there would be no CGT.
CATA
Asset Protection Specialist
[email protected]We’re moving to Singapore, which I believe has a tax treaty with Oz.
To be honest with you, I have not really commenced my research into the implications of this.
Any advice would be welcomed.
Manic
Lucky you… I worked there for 2 years and really loved it. Joined a scuba diving club and spend every weekend I had free diving off the east coast of Malaysia…. magic. [upsidedown] [biggrin]
Back to business.
That’s were I was going when I consulted Touche Ross. It was a long time ago and things may have changed but with the structure they set up for me I hardly paid any tax in Singapore. Not being an Oz resident for that period Australia was not interested in any of my overseas income.
As I said. It’s worth consulting the experts.
Cata. Even if you are a non resident you still need to pay Oz CGT on property in Oz…. mores the pity. Not on shares though. [biggrin]. The down side is that you don’t get to accumulate any CG loses either which is more my track record with shares. [blush2]
Cheers
Elka. The down side is that you don’t get to accumulate any CG loses either which is more my track record with shares. [blush2]I am not an expert in this area, but I know some who are that would disagree with you Elka. I think it depends if you are leaving for good or not, and where you are going.
CATA
Asset Protection Specialist
[email protected]Originally posted by Cata:. The down side is that you don’t get to accumulate any CG loses either which is more my track record with shares. [blush2]I was going to say something similar. If you are overseas working, you could be classed as a non resident. If you make money here while classed as a non resident, you could be charged even more tax than normal. I think there is no $6000 tax free threshold and there is a rate of around 30% payable.
But, I am not an expert in this area, and this situation has never happened to me. Pity Coasty Mike is no longer here
I am not an expert in this area, but I know some who are that would disagree with you Elka. I think it depends if you are leaving for good or not, and where you are going.CATA
Asset Protection Specialist
[email protected]Terryw
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It’s true Terry that as an non resident you get to pay more income tax. As you say, no $6k tax free limit and you get to pay 29% from the 1st dollar. At around $21k and up your on the same scale as a resident. That’s roughly $4k extra tax per year. [grrr]
So it depends on your situation whether a non resident status is the best for you if you’re only leaving for a couple of years.
As at the time my main income was being earned in Singapore and the structure that the accountants set up meant that a big portion of my contracted fee was being earned in a tax free place leaving only a small portion to be taxed in Singapore, that was a small penalty to pay. This was also before CGT was introduced so I didn’t have to take that into consideration.
Re CGT on property in Oz today. I would love it if you could tell me how to avoid this. I am a non resident. I live in Belgium and have for many years since I met my husband here on a “temporary” job contract.
My accountant in Oz and the information I have read on the ATO site both indicate that I will need to pay CGT in Oz if I sell any of my IPs there.
I would be very grateful if you could show me that I am wrong. [smiling]
Cheers
ElkaHi all,
If you are an australian citizen and you are overseas as a non-resident you can accrue your income tax losses each year and these losses can be used to offset any capital gains tax in the future.
Manic – we are aussies working in Singapore – we have a great accountant here who specialises in aussie expats and investment properties – i have pm’ed you some details.
We sold a property a couple of years back – we bought it for $135,000 sold it for $330,000. Did not pay any CGT on it as the income tax losses we had accrued over the years offset it.
On another note -to be classed as a resident of Singapore – you have to be working in Singapore for more than 180 days – which you will be… so that will not be an issue – also just to let you know income tax here is very low…. for example on an annual salary of say $100,000 your tax will be about $5000 for the year. Tax does not come out monthly here – you pay it in one lump sum every year.
Pm me if you need any more details.
Mei
Thanks everyone for your responses.
We’re actually NZ citizens, but have been living in Oz for over seven years. I suspect that because I’m not an Australian citizen I might not be able to accumulate the losses and offset it against the capital gains. Many times I have thought about becoming an Australian citizen but ……
Just to give you some background on the property, we brought it just over two years ago, and whilst the capital growth has been modest, I suspect that we’ll make a loss given the selling costs plus the fact that we financed the purchase costs (recommendation from the accountant).
1. Current market value $310K AUD
2. Financed amount $285K AUD
3. Purchase price $265K AUD
4. Annual rental return $14,300 AUD
5. Deprecation schedule not too shabby – approx $10K AUD first yearFor me to continue with the investment, I need to work on the following assumptions:
1. We will move back to Oz
2. Can carry the losses forward each year
3. Can continue to finance the shortfall each year – approx $12K AUD, when you take into account maintenance costs etc. This also becomes challenging because I now need to take into account forex, transaction costs etcMy current thinking is:
1. Sell the property as one of the key foundations, tax write-off / returns will be missing
2. Use the freed up capital to invest in something more liquidity especially if we are to move elsewhere e.g. China – shush don’t tell my wife that
3. Chalk it down to the fact that the lovely Australian tax system encourages you to make investments that you might not normally make e.g. tax shelters etcBe interested to here what you guys think
Hi, I’m Australian PR, bought my sister’s house & had no money to live on so went back to work in Singapore for 6 years.
I geared the 1st house to buy 3 others in 1999/2000.
There’s a 6 or 7 year rule that allows Australians to rent out their homes (depreciation applies) and still claim primary residence CGT.
Another negative gearing can be carried over. I did not want to be taxed on the rental income (in those days a paltry 15K p.a.) so I worked on getting 0 income, in fact slightly negative.
I was working so hard & didn’t know anything about tax & didn’t lodge any tax returns for 5 years. Finally, I lodged the tax returns & was pleasantly surprised that not only did I not suffer penalty but the tax was much less than expected.
Singapore tax is so negligible ( I paid six & a half thousand on 98K taxable income) but the living costs can be high.
There’s a tax consultant (originally from Ernst & Young) now operating in Singapore. His name is Steve & you can find his company in the yellow pages in Singapore. The company is Australasian Taxation Services. He’s at the Concord building on Beach Rd.
Good luck with your venture (and do talk to Steve. He’s very good & the charges are so negligible).
Kum Yin
Hi Manic, I looked at the numbers you posted & can tell you 12K liability for anyone working in Singapore is no big deal. You can pay it with beer money!
I was contracted to the government on $50K p.a. and I first borrowed $200K against my house. Then I upped the borrowing to $420K. I eternally regretted not borrowing the extra 80K that I could have. One word of caution is that I was buying into a rising property market.
Andy, if you’re reading this, good luck. Working overseas is probably the fastest way you can get back on track. Good luck to the both of you.
Kum YinOK consulted further with our accountant and he will file a client update with the ATO every year that we are away. This will keep things ticking over and they’ll (ATO) have a record of our losses, which will be calculated against our first tax return once we are back.
I also got a rude shock when I got a couple of real estate firms to give me a market appraisal – nothing what I expected and in fact we would be making a sizable loss (after calculating selling costs, etc) of between $25-35K.
End result, we hold onto it, endure the dry days (beer money being saved) and have an IP that will hopefully grow as time goes on. My wife keeps reminding me that we’re in it for the long haul (10+ years).
Cheers,
Manic
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