Advice on buying First House and purchase structure

Hi,

A little bit about me first - my partner and I are looking to purchase our first house, cost is approx. $1m inclusive of stamp duty. This will be the first house either of us will have purchased. We are located in Melbourne. I have had a high paying job for a while now which has enabled us to both save substantially and we can purchase the property outright (we are pre-approved for a loan if that is more advantageous though for some reason). Additionally I have a discretionary family trust set up (run by a company for which I am the director of, and another company that is owned by the trust which I've been working and earning income with).

My partner works locally and this is unlikely to change as she has a secure tenured position. I have taken time off (I am a contractor) and am in the process of studying for the GMAT in order to try to get into one of the top 10 MBA schools for the August 2017 intake. All the graduate schools are located overseas - Europe, America, and one in Asia. The course length will be approx. 12 months, give or take two months. I will be working from August 2016 - June 2017 once I have received a placement at one of the schools.

I will likely leave the country in June 2017 and not return prior to August 2018 or perhaps even 2019 depending upon where I end up working - however my end goal is to come back and work in Melbourne by August 2019 at the latest.

During my time overseas I will likely earn income (I'm a dual national and can work in the EU) for which purpose I want to make sure I am legally entitled to not be an Australian resident for taxation purposes (I don't want to be double taxed and I may end up working in the middle east on a tax-free contract).

Effectively, we plan on purchasing this home, renting it out for the next 2-3 years, then knocking it down to build our own PPOR. We do not plan on selling the property at all.

My question is: Should we purchase this property in our names (hers and mine) or should we purchase the home in the family trust?

I would usually go with putting the property in our names however am reluctant to do this for two reasons:
(1) Asset protection - even though my company has PI and PL insurances, I plan on discontinuing the insurances when I leave the country and have the company cease trading - not sure if a previous job I've done could come back to haunt me personally because of this and thus jeopardise our home.
(2) Resident for Tax purposes - if I own any property directly, rather than as an investment, I've heard that the ATO is unlikely to rule favourably towards declaring me not a resident for taxation purposes while I'm working overseas during my ~2 year hiatus. If it's in the trust, then while it's rented out it's treated as an investment and the trust pays tax on the profits only (or the profits can be attributed to my partner via a distribution).

I have a meeting with my accountant next Monday and I'm planning on asking him these questions, but I was wondering if there was anyone in here to offer a critique or pick apart anything they see as illogical in my reasoning above prior to my meeting.

Thank you for your assistance.

 

Have a read of my legal and tax tips - there are about 100 on this topic. There is no simple answer.

Watch out for the laws surrounding companies if you become a non-resident. a company must have a resident director. Watch out for the laws surrounding trusts too as you would want the trust to remain a tax resident too.

Consider the stamp duty laws too - the trustee may have to pay considerably more stamp duty if there is a possibility of a non-resident being a capital beneficairy of the trust.

Read my tips of buying in single names. Also look at the gift and borrow back strategy.

And see a lawyer.

 

I would seek legal and tax advice. These two people should be part of your "go to" team. The other is a good mortgage broker.

There are issues with trust and trustee Directors who are not resident which can trigger a CGT issue. Important you understand these issues and any fix is covered by asset protection actions. It may be possible to have an additional resident Director BUT...that can affect assert protection.

I would doubt you will be a non-resident for income tax purposes based on your brief explanation. Your overseas income would also be taxed here with possibility (?) of a tax credit for foreign tax paid and its important to consider which country you plan to work and how it and Australia's tax laws align. ie tax free middle east income would be taxed here

 

It will be for the ATO/AAT/Court to decide but based on those facts I would be very surprised if you were not a resident for tax purposes. It appears your partner is staying in Australia rather than going overseas with you? In addition to owning property in Australia this will not help your case.

I also hope your real name is not A Brunelli if you are planning to try and be a non-resident even though you clearly intend to return to Australia. This post could come back to bite you should the tax man find it. Especially the "however my end goal is to come back and work in Melbourne by August 2019 at the latest." line.

You've mentioned you are meeting with your advisors which is the best approach so I am sure they will give you advice based on your full circumstances.

I thought about pursuing the MBA route at one stage as well. The top 10 are competitive but being Australian should be a good advantage given they like diversity in the classes. Best of luck with the GMAT and MBA applications.

 

However taxpayers are required to self assess and lodge a return choosing residency or non-residency. The ATO have a very good residency tool (there are TWO tools (departing or arriving) !!) here Tax Tools - Residency - Leaving Australia

Take care with the emigration question. Click the link and read about what the word means....You must have a permanent visa etc not a temporary one.

 

Of course, all income tax is self assessed in the first instance in Australia.

If you were really concerned and your case could go either it may be worthwhile looking into a private binding ruling from the ATO.

 

The ATO doesnt do them for outbound residency. They argue its based on common law and refuse to give taxpayers legal advice. Thats why the tool is available. In some rare cases the decision tool can report "undetermined" and it encourages the taxpayer to apply to the Commissioner. They accept those. I had one related to UN work and they agreed the taxpayer was non-resident ordinarily but a resident under UN charter rights...ie Visa exempted but covered by some UN thing Australia agreed to.