RBA rate cuts great.....but not for expats

Discussion in 'Loans & Mortgage Brokers' started by Dean Collins, 2nd Jul, 2019.

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  1. Dean Collins

    Dean Collins Well-Known Member

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    Its great to see RBA have cut rates another 0.25% this month with most banks passing along some or all of the cut to customers from the 16th of July

    However thats not what i wanted to post about.

    I just wanted to remind Aussies living overseas that buying property in Australia is a terrible investment decision - and whilst with low rates and low $A (eg $US at over $1.40) it might look like a good idea.......the current ATO tax scheme makes it a terrible investment.

    I know i've posted about it before but several years ago the ATO changed the rules that non residents no longer get the 50% Long Term Capital Gains discount.

    This means as an expat living and working here in the USA when you sell your property for the years that you are overseas your tax rate on ALL capital gains is 38-45% and you dont get the 50% discount that you would if you lived in Australia and you held the property for more than a year (eg LTCG rates used to be around 15-22%)

    Its a shame that the ATO have done this to expats living and working hard overseas as we are actually a net benefit to the Australian economy......and for those of us already invested in Australian property.....no reason to sell-but likewise.....no reason to purchase any additional investment property either as it makes far more sense to invest in the USA where LTCG rates are 15% or 20% max.

    So if anyone sees ScoMo and wants to bend his ear about how to stimulate the Australian economy.....feel free to suggest this.
     
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  2. tc8

    tc8 Well-Known Member

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    I’m an expat, and it affects my family and I significantly. Just last year we had made the decision that we would have gradually shifted all of our money & asset to Australia by 2021.

    Now we might probably just buy a small apartment as an IP or something in two years time And wait to see how things unfold.

    Good thing is that we have USD and The weak Australian dollars does help us a bit
     
  3. Takingcareofbusiness

    Takingcareofbusiness Well-Known Member

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    This was a big factor in me moving back to Australia after 16 years in Hong Kong. I will need to sell one or two properties before moving overseas again.
    Another factor was the Queensland government significantly raising land tax for expats. After I moved back they changed their mind about this. Australian governments change their minds (and rules) relatively often.
     
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  4. Dean Collins

    Dean Collins Well-Known Member

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    Yes its good that the QLD state govt changed their position on this issue. Im curious how long it will take for expats to forgive them?

    As discussed I don't see us ever buying another IP in Australia even though we have the funds to do so while the LTCG discount is removed.
     
  5. Redom

    Redom Mortgage Broker Business Plus Member

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    @Dean Collins - thanks for the insights. Curious, what happens if you come back to Aus and then sell up? Perhaps not specific to your situation, but I think a lot of Aussie expats are attracted to Aussie real estate as its partly viewed from the prism of 'I can come back here one day'.

    We work with a few HNW type's in Asia banking (HK, Sing).

    So far, I think from early conversations, there appears to be a pretty noticeable interest increase recently from those looking in from afar in recent types. Mainly banking types in these markets, so they view property in more clinical 'numbers' than anything else.

    What they see currently now is:
    - A very low dollar, likely to trade higher in future (i.e. theres a currency upside play). I dont know how tr
    - A very good yield (I think this compares to their local markets where yield is lower on housing stock).
    - A very affordable price point (price falls, and again vs their local market). I.e. they're reporting value given rate cuts and the cost of debt vs yield.
    - Some of the strongest population growth rates in the developed world (and developing). I.e. long term fundamentals that make it feel 'safe' and a pretty good 'safe' return
    - A desire to swap cash for something a bit more risky. I.e. they want to take on a bit more exposure and are looking for something.
    - Not hit by foreign taxes on state budgets that only apply to non-expats.
    - Biggest reason is probably timing. Bankers, like to buy low type. View it more as a stock than anything emotional, and Aussie housing is a 'stock' thats trading low now.

    Of course, other issues at play - taxes, borrowing power, etc. But there appears to be an interest increase from these markets. In general, it may just be a bit of confusion, understanding expat tax can be a bit difficult with some of the changes floating around from both federal and state governments and working out who is actually impacted by what.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    FWIW, our expat enquiry is 3 times what it was 18 mths ago.

    Expats are regarded as the " top end of town" by many so there wont be too much noise I dont think to address the disadvantage.

    ta

    rolf
     
  7. Dean Collins

    Dean Collins Well-Known Member

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    You are supposed to "pro-rata" your time overseas eg lets say 5 years overseas.......5 years in Australia then you would get 50% discount on the 5 years you spent in Australia and the full 38-45% for the 5 years you spent in Australia.

    How good the ATO will be at checking this if you dont sell for 20 years...... who knows.

    But thats "supposed" to be how it works. So if any of you high net worth expats think they can "buy now and get away with cheating......." good luck to them.

    There is a little bit of an extra complication for us personally because we have green cards and are in the USA due to "The Heart Taxation Act" which basically is going to force us to sell the properties BEFORE we leave the USA- pay capital gains in Australia, then offset our USA gains against this, then come back to Australia "with cash assets only" and then "purchase new IP properties" we'll keep for our retirement.

    (its long and complicated but basically the USA wants to do a mark to market on all your capital gains when you leave the USA....but the ATO refuses to recognise this payment as a capital gains payment - as such.......not selling and then pro-rata of the gains while in Australia isnt an option).

    Like i said as a non-resident you are supposed to pay 38-45% which still makes it a sucky investment (especially compared to 15% we pay here in the USA on our investments-so Australia loses eg. we were purchasing an additional IP every second year but since the 2012 changes our money has since been going into USA equities instead so Australia's loss).
     
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  8. Gockie

    Gockie Life is good ☺️ Premium Member

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    I think that's the point... since it's not desirable for an expat to own as an investment then makes it more likely for a person in Australia to buy... perhaps even.... owner occupy.... shudder the thought...

    I mean, (from the other side of the coin), wouldn't you hate it if every house in your community was owned by people living anywhere, all you wanted was a house to buy where you live but overseas people on really high incomes owned them all and kept being able to push up the prices out of your budget, making it impossible for you to buy?
     
    Last edited: 4th Jul, 2019
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  9. Takingcareofbusiness

    Takingcareofbusiness Well-Known Member

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    It depends a lot on your own situation.
    Some other factors that affected my situation were (a) there is no tax free threshold for expats; if you are positively geared you pay tax on the first dollar (add that to losing the 50% capital gains reduction and paying the suddenly increased land tax)
    and (b) I was already borrowed to the new maximum set by APRA, so expanding my portfolio was going to be quite slow until they change some rules.
     
  10. Dean Collins

    Dean Collins Well-Known Member

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    Sure.....but what im reading from Peter Wargent etc is that the Australian building is imploding in on itself because people ARENT buying :)

    I do love the "foreigners causing all the problems argument though"...... until they realise that China saved their ass in 2008 and that foreigners moving to Australia is the pump that drives up our gdp or that....x y z (you get my point :) @Gockie )
     
  11. Gockie

    Gockie Life is good ☺️ Premium Member

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    It's not in the best interests of all if Australian homes are all owned by people overseas... You'd have to agree with that, surely?

    Sydney homes boomed because of Chinese money. Now we have people who paid way too much, China more or less stopped Chinese people from being able to invest overseas. Now its stopped/highly pulled back, we have lots of recent buyers underwater.... that's a bad outcome.

    If the money didn't come in in the first place in such high volume then it wouldn't be such a problem.
     
    Last edited: 4th Jul, 2019
  12. Redom

    Redom Mortgage Broker Business Plus Member

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    @Gockie - interesting points. Policymakers often discuss this one too and its different country to country. Overall the balance of allowing foreign money to buy new property seems right.

    Yes it does increase the price of property, which can work against a country's citizens (particularly younger Aussies).

    But it does create jobs, tax revenue, activity, consumption, demand, etc. Building a new tower is a big big investment that has a very large multiplier impact on the economy (i.e. it keeps flowing through because of the jobs it creates). Buying an existing property does very little (very few jobs created, just a transfer of money).

    Technically this should also increase the supply of housing, which helps the countries citizens access more affordable housing.

    Hence policymakers position so far has been to allow new property purchases from overseas, albeit, taxing them at a pretty big clip (although its relative to other countries who do similar).
     
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  13. Beano

    Beano Well-Known Member

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    Did you buy many properties in hong Kong 16 years ago ?
    If so will you keep them when you come back to Australia or just sell one or two of your HK properties and keep the rest of you HK properties ?
    Keen to know as they have gone up so much over 16 years and I do not know if I should hold
     
  14. Beano

    Beano Well-Known Member

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    Is property tax only 15pc in the US ?
     
  15. PandS

    PandS Well-Known Member

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    yes if your income is 434K or below, capital gain tax is very generous in the US that why everyone into the stock market, easy, fast money cheap CGT
     
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  16. Dean Collins

    Dean Collins Well-Known Member

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    Nonsense.....although we do have a lot of xenophobic people in Australia who wouldnt know a 5th generation chinese descendant from a chinese tourist buying "new investment property" claiming chinese are driving up prices but its fake news (and the water research was plain BS but thats for another day).

    1/ Foreigners arent allowed to buy existing property.
    and most importantly.....2/ im talking about the LTCG discount being removed for Australian citizens who are residents overseas (working hard earning money which HELPS the Australian economy (eg sooner or later when i retire and bring back a truckload of cash).

    This said i can tell you one thing @Gockie .....since 2012 my investment savings each month that Jodie and I put away....ISNT going to Australian property and instead its going to USA equities.....and that for SURE isnt helping Australian economy.

    I will NOT invest at 48-45% LTCG tax.
     
    Last edited: 4th Jul, 2019
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  17. Dean Collins

    Dean Collins Well-Known Member

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    USA LTCG on any investment is taxed at 3 levels )eg property/shares/art etc)
    - the level you pay is based on annual regular income+capital gains
    0% if you earn less than $39,375
    0% if you earn less than $39,376 to $434,550
    20% if you earn $434,551 OR above

    More here
    2019 Capital Gains Tax Rates — and How to Avoid a Big Bill - NerdWallet
     
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  18. Gockie

    Gockie Life is good ☺️ Premium Member

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    I'm 4th generation Chinese descendent. I have a Chinese great grandparent buried here. That individual passed away a couple of months after I was born. The situation in China was just so bad, my relos simply had to flee China.

    Definitely Chinese money has driven up prices here in Sydney recently though, it's done indirectly through family.

    Your point 2, I think we (meaning, Australians in Aus) may be better off having you as an Expat invest your money overseas. You may or may not come back here. If you do, no skin off our noses if you have investments overseas. But in the meantime, you haven't driven up the price of our existing property out of reach of other people. I'd say it's a win.

    Note, I know there's extra costs for investing, I know rates are commonly more expensive for investors than OOs in Brisbane and land taxes generally only apply for investors with a certain land value worth of property in each state/territory.... Yes, I'm an investor but I think it's good from a social equality point of view. If ordinary OO's were locked out, we'd have a body of people really unhappy with their situation and they may choose to leave Australia or we'd have civil unrest. Not good.
    Anyway, we have tax benefits for investors, ability to claim interest on investments as a tax deduction. OO's don't get that.

    And if you really hate your situation... well, you can always move....
    I will say, in my opinion whatever you owned before laws changed should be grandfathered and not subject to changes in policy. But anything bought after should be subject to the rules at the time of purchase. I.e. The shifting of goalposts by Government once you already bought an investment doesn’t sit right with me.
     
    Last edited: 4th Jul, 2019
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  19. Takingcareofbusiness

    Takingcareofbusiness Well-Known Member

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    I wish i bought many HK properties years ago. But.......no.
     
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  20. Toby

    Toby Well-Known Member

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    Point (a) is not really correct:
    Tax-free threshold if you are leaving Australia with the intention to reside overseas
     

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