First Post - Strategy for Non-Resident

Hi everyone. I'm not sure whether this is the first time it has come up, but I'm an Australia who lives abroad and as such, I'm a non-resident for tax purposes. Based on my own analysis of the tax laws, it doesn't seem to make much sense to own or buy properties (whether it's a future PPOR or for rental income) as the tax laws seem to work against you. I do invest on the stock-market as the laws seem more favourable in that regard.

Does everyone agree that it makes no sense? Or are there alternative strategies which I'm unaware about?

 

Hi Istanbulla

Plenty of Australian Expats purchase properties in Australia for various reasons.

Tax is a driver, but not the only driver. True you cannot offset the rental losses and these accumulate - but what are your plans around moving back to Australia?

When you say tax laws work against you, what do you mean?

 

Thanks for your response.

Plenty of Australian Expats purchase properties in Australia for various reasons.

True, but for some it is because they don't plan to live long overseas. There is (or was) a 6 year exception on capital gains tax for the principal place of residence. Also I believe that if you return to Australia and become a tax resident that you would be able to sell the house with an exemption of capital gains.

For others maybe they're either unaware of the law or don't care about paying capital gains tax at some point in the future.

Tax is a driver, but not the only driver. True you cannot offset the rental losses and these accumulate

Not only rental losses, but since there is no tax free threshold, I'm paying 33% tax on rental income.

- but what are your plans around moving back to Australia?

No immediate plans to return, but still consider it as a 'base'. We might return in 10 years for children's education.

When you say tax laws work against you, what do you mean?

Well, for a start any Capital Gains made whilst overseas will be taxed in the future.

Secondly, since I don't have any Australian income which would otherwise be subject to tax (dividends and capital gains on shares are tax free), negative gearing is not possible.

When you mentioned earlier about the accumulation of losses - is it possible to offset future taxable income against those losses - and is there any limits associated with this - e.g. time? Can it be spread over a number of years?

 

As a ex but recent non resident - the biggest issue is access to lending. You probably have significantly less borrowing power on exactly the same secure money as a non resident vs a resident. Think investing strategy AND lending strategy ... property investment is a game of lending strategy regardless of residency anyway.

 

That's quite possibly the case. However, in reality even if I can't leverage to the same degree, this is offset by the fact that I make significantly more money overseas than I could back home.

 

Youve done some decent research and concluded property isnt great for a nonresident. Borrowing is lower and fewer tax benefits.

If you can make more overseas, you should do that.

 

That's the thing - firstly I'm not sure that property isn't great for a non-resident. I asked a question earlier which hasn't been answered yet with regards to whether losses can accumulate and be offset against future income tax (should I move back).

I was also hoping to hear from other members who may be in a similar situation to me.

Buying overseas comes with other risks. For example, I am currently living in Istanbul which has gone through a pretty major upheaval economically. Interest rates are ~20% per annum and have a maximum term of 10 years. Contracts / language are all in Turkish of course, so this makes things much more difficult. Then there is currency risk and the fact that I'm on a 30 day contract and may have to leave the country on short notice.

I could invest in my wife's country - Malaysia, but that market was overheated by foreign investment (particularly China).

 

Income tax
Land tax
Absentee land tax
Proposed changes to non-resident tax rules
Loss of CGT discount
Borrowing / Finance issues incl refinance difficulties

One of the difficulties is whether investing local until your return is a better strategy. You must consider the impact of FX changes and this cannot be predicted. Your overseas savings may lose value when an adverse FX spread occurs. And then there is the compounded growth benefit. Perhaps investing locally will deliver better return ? And with less costs eg no duty, land tax etc....

However the impact of a CGT event occurring to foreign property on return to Australia should be considered if you decide not to sell the local property.

 

Set up a non resident company / trust in a low / no tax jurisdiction that fits with your comfort zone. Lots of options there. Invest in globally diversified portfolio. Let it compound over the next decade+. Then decide what you want to do as needs evolve. You will need specific (not free) advice obviously.