Please help with dilemma on moving overseas - do we keep buying?

Terry, how does this work if a beneficiary is non-resident?

 

If they are a non-resident and receive income they will be taxed at non-resident rates.
If no income then no tax.

 

What about land tax surcharge and deemed non resident trusts?

 

The trust will be a resident trust.

 

even with non resident beneficiaries?

 

They would have to exclude 'foreign persons' from the trust to avoid the surcharges. But the definition differs from residency for tax. A person can be a foreign tax resident yet not be a foreign person.

 

Warning: Both France and Ireland have inheritance & gift taxes. Consider moving assets into children's names before moving there. Review what you have in each spouse's name too.

My experience as an expat is that it's not worth holding property in Australia. (No CGT 50% discount, starting tax rate 32.5% from the first dollar earned, PPOR now taxed as if investment property, land tax etc etc).

 

Brutal!

I'm not sure you can move the assets into children's names if they're not 18 can you? They could be held in trust with the children as beneficiaries but that's essentially a sale so CGT and stamp duty would apply. Also, whilst there are tax advantages in a trust, there are also tax disadvantages, which I think vary depending which state the trust is set up in. Of course, this might be acceptable to avoid the long term issues you're talking about.

If it were me, I'd probably look to set this all up in the US and have the Australian assets owned by US based companies/trusts. To my knowledge they do not penalise anywhere near as heavily like Australia for a similar set up (my wife is American) and are truly capitalist in this regard. I don't believe it is difficult to set up a LLC for example (limited liabiity company). Just google 'set up US company as a non-resident' and plenty pops up.

You would just want a local will, POA and enduring guardianship set up for the appointor in Australia to avoid any legal issues as it can be a challenge to prove and establish control of structures after death using foreign estate documents. This is why my wife and I have full estate planning (will, POA, etc) duplicated under local laws in both countries.

- Andrew

 

This won't work. I will explain later.

 

The trust must also be a resident trust for tax purposes. Having a Australian company with one resident Director (s1.5.1 Corporations Act) does not mean the trust is resident. The central management and control must be within Australia. You may need to allow the resident Directors to manage the trust. Legal advice is important.

If you are not citizens this arrangement could also pose a concern for some property being acquired and FIRB rules may affect authorisation to purchase. Again, legal advice is important.

Land tax, surcharges and absentee taxes have risen in prominence and could also further change in the future. The rates could rise, other states may replicate these taxes and you may find the imposition unavoidable.

Tax losses will accumulate in the trust until taxable profit occurs.To use those losses will need a family trust election. Once fully used then the trust must distribute and non-resident tax applies. TTax laws in the foreign country may not recognise trust income and may even consider distributions to trust capital to be taxable. Final CGT and trust income etc needs foreign tax advice.

Furthermore the local AU tax issues are not straight foward. Lets assume the Trust does distribute to a non-resident. Tax is assessed to the trustee. It pays that tax at non resident rates. Then the beneficiary must lodge a local return to include the same income and claim a credit AFTER s99 / s99A tax has been paid by the trustee. Its a curcuit that can mean $0 tax is actually paid in Australian but while its 100% creditable if you dont follow the correct process it can be double taxed. I have seen too many tax advisers not do it correctly.

And if and when the property is sold then no CGT discounts occur.

Having foreign property and loans against foreign property may pose concerns to a foreign lender too. Wise to check the impact of this.

Finance for a non-resident company is a problem. Assume you would organise that before you left. But once you depart changes to the company to add a Director will close off access to finance. The local director MUST give a guarantee and that is hard or impossible. So refinance options are likely impossible.

 

Where overseas you are moving to? Is the property market hotter than that in Australia? You need to understand you want your kids to be back in Australia sometime. If you can make better investments overseas, you can always use the equity gained to buy Australian property when they are back. Save all the complicated taxation and financial issues.

Simple!

 

Hi all, in a similar predicament and interested in some advice.
Dual citizens and considering moving to Ireland for a few years.
Own 1xIP which we will keep long term and 1xPPOR which will sell before we go.
We wanted to buy another 1-2 investment properties in WA before going, reasons being;
- better ability to borrow here for investment mortgages, Ireland needs 35% deposit
- believe that Perth property prices will grow whereas Ireland is at peak so would be wary of investing there in property at this point.
- ideally we want to buy something for say $500k-600k do works and add value then either sell or hold and rent. Could be $100k profit if done right then would need to allow for CGT to come out of that.
what am I missing tax wise that would make this a non runner?
Is the CGT rate for non residents the same as the income tax rate?
Would setting up an Australian company help?
Thanks in advance

 

Minor Children can own property - but generally it is not practical if there needs to be finance.

If you have a foreign company own property in Australia the company must be registered here with ASIC and needs a resident director and office. The property income will be taxed under Australian tax law so no advantage really. Estate planning will be based on Australian law too. If the property is held by a company or a trustee it won't pass via the will, but if you own the shares of the company these might. But shares of a company that owns property will be taxable Australian property (TAP) and taxed under Australian laws.
Laws in relation to foreign companies and trusts are also very complex and you have 3 jurisdictions to worry about - commonwealth, state and foreign.

 

But when we consider the benefit of huge leverage in this country to buy property, for example, someone with 90% LVR, is it worth holding property in Australia? Understand huge tax need to be paid but maybe still its worth as money belongs to banks and all interest paid can offset the income from rents so that no need to pay much tax.
The only risk is having enough buffers available to cover any interest rates increase and principle payments.

 

I think it can be worth it still, even if you have to pay tax on the capital gains without 50% discount it is still profit you would not otherwise get. If you have property with equity it would just be sitting there not doing much. If you have no property yet, then you have to factor in the deposit and stamp duty payment will mean you have less to invest overseas though.

 

Australia is not the only place where you can borrow money to buy property

In Europe LTV (load to valuation is the commonly used acronym here, rather than LVR) is generally also 90% but can be up to 100% for first home buyers. Each country notifies their current policy to the ESRB (European Systemic Risk Board), you can follow the notifications here to get up to date information:

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Also in many countries the capital gains tax is zero, or you can make it zero, for example in Germany by holding for >10 years, Belgium > 8 years, in Finland by using the property as your PPOR for any 2 years, and so on.

So do the numbers considering where you are tax resident, where the property is, and I think you will find that Australia is not very competitive unless you are living in Australia.

 

But will buying here prevent you from buying overseas?

 

Not in my case. Nervous to make a decision to sell PPOR worth ~30% equity. I have no clear plans if and when I come back. I might not be able to afford to buy similar house in same area after 8 years or so if I come for kids uni etc.

 

@San2018 i'm curious why would you consider coming back for uni?
Most European countries have truly free tertiary education, rather than starting life with HECS debt?

 

The low interest rates overseas in europe can be valuable but their lending may be slightly more regulated since its often subsidised by taxpayers. eg germany has some regulated caps (80%) but also a 35% limit on income to service in exchange for nuts rates. Approx half have 10 year fixed rates....The rate has SUBSTANTIALLY (66%!!) risen in the past year. From 0.45% to 0.75% . Bring it on. They also have some interesting loan products that are annuity like with a balloon or the typical full repayment type over 30 years (max) or even IO. Govt subsidies help. Taxes can be hefty but like our duty but a higher from 3.5-7%. The agent fee is shared by buyer and seller and can be real high. The bizarre kitchen issue can be a hidden cost across europe incl Italy. (Home wont come with one and you sell it vacant without one).