Own House in NSW - Live in France

Hello.
I am an Australian who has recently moved to France with my wife and kids. My wife and I own one house in NSW (our first property) that we are currently renting out.
The loan setup is P and I (the same as when we were living in the house). The rent does not cover the loan (Around 100 dollars short per month).
We're totally new to property ownership and all the taxation laws that go with it. Are we doing the right thing with the loan structure or are there tax benefits to be had if we go to the interest only arrangement. (Note 1: My income for 2015/2016 will fall under or near the tax free threshold as I left Aus in September, my wifes income was zero). (Note 2: We plan on staying in France for the long term) Thanks in advance for any assistance.

 

Hi there

It largely depends on your future plans.

Do you think you'll purchase another owner occ property in Australia at some point?

If so - will you continue to rent out your current property?

Cheers

Jamie

 

If you plan on staying there you'll probably become a non resident for tax purposes and that throws all the rules out the window. I think you'll need to seek some professional advice.

Ordinarily we would all say swap to IO payments to improve your cash flow position, allowing you to hold more future properties.

 

To answer your first question: Normally no, we won't be owner occupying in Aus.

For the second question: The plan is to keep renting this one. We'd like to either own it outright or at least get the loan down before selling it to purchase another. The market value hasn't moved up much in the suburb since we purchased it two years ago (outskirts of Newcastle).

 

Why sell it to purchase another? I think the value of it will go up in the long term. In my opinion its better to pull out equity and fund the purchase of a second property from that. Keep the loan on it higher. Loans = leverage. You'll benefit from any growth.

Secondly, paying interest only should turn its negative cashflow $100 a month to something positive. (I imagine).
I'd always go interest only for IPs but admittedly the tax rules maybe different for you as you are a non resident. Interest only will help if you want to add a second property to your portfolio - you will have more cashflow available.

Please do your due diligence and read more advice relevant for your situation.

 

Your "long term" plans may mean you are non-resident and subject to full CGT, land tax and possibly affected by exchange rate variances that could be unfavourable on your loan. The decision to retain the property should be based on sound knowledge and personal tax advice would be suggested.

 

Thanks for your input. I will have to seek advice on this. Is it better if I see a NSW based tax advisor? The reason I ask is I may know someone in Victoria.

 

It shouldn't matter which state your tax adviser is. Land tax is a state based thing but that's not of primary concern to you. It is important but not the main thing, its the Federal Taxes law that matters most to you.

 

The answer depends on your own particular situation and future plans. In terms of the loan on the Newcastle property I would keep it as a P&I repayment loan unless you need to move to IO due to the shortfall between repayments and rent. I generally don't use IO as it gambles on future increases in prices. but that's my own personal view. I'm old so have seen that property prices can remain static for many years, or decrease ( don't shoot the messenger). I prefer the tenant to repay the loan in full rather than just interest. Then you have a tenant paying for your future nest egg. Do your own research though and work out what fits your situation.

You need to talk to an accountant who can advise re your tax situation in the two countries. I would have thought there would be a tax agreement in place so that you don't pay tax twice and get deductions carried across, but you need to check.

 

Are you earning an income in France? Overseas income can be taxed in Australia.