Australians living in the UAE, UK or elsewhere may need to be on their toes following recent budget details that could see them taxed as foreigners when selling their residences back home.
Foreigners to Australia will also see their ability to buy property in the country restricted, with charges on the rise.
Both sets of measures look to cool a bubbling housing market, particularly in the city hot spots.
The Australian expat property tax
Last year the Australian federal government introduced a 10% withholding tax to sales of properties owned by foreign investors worth A$2 million that will essentially be seen as their contribution to capital gains tax. This is due to drop to values of A$750,000, easily netting contributions from the posh parts of Sydney and Melbourne, with the tax bumped up to 12.5%.
Aussies living back home have a Capital Gains Tax exemption when they sell their primary residence. But if they have declared themselves non-tax resident, they do not have that exemption, and will end up like non-Aussies – paying a withholding tax as the CGT contribution.
What does the Australian tax office say?
The Australian Tax Office has a useful fact sheet. It defines in broad terms which individuals will be considered resident for tax purposes. Also, it explains the tax status of non-citizens who do various business and spend a decent amount of time in the country.
Essentially, citizens who do not set up a permanent home in another country are “generally” Australian residents for tax purposes.
But if they have left ‘permanently’, as defined by their tax status with their country, then they will be deemed as foreign.
Australia’s treasury aims to make just less than A$590 million in the next few years from the new tax definitions.
So should Australians hold off selling their main residence until they return home?
That’s the Million-Aussie-Dollar Question, since everyone is different and citizens may want to cash in on the rise in their property. The question is, would walking away with only A$875,000 from a $1 million sale value still make good investment sense? Ask a professional adviser to cast an eye over the figures.
And non-citizens buying in Australia?
Overall, the federal budget will make it more difficult for foreigners to purchase property.
Firstly, only half the units in a new development can be sold to foreign buyers – cutting supply. This will be a condition on New Dwelling Exemption Certificates – the document that acts as a pre-approval for foreign buyers to the developer.
Further, foreign and temporary tax residents are now denied any access to CGT exemptions, although anyone who bought properties prior to this date with such exemptions can still claim them until June 2019.
But other measures aim to help the surrounding community. For example, if foreign buyers who bought from 9 May onwards who don’t have a tenant in the property for six months or more (nor live in it themselves for extended periods) will be expected to pay an annual charge equal to their foreign investment application fee. This aims to free up rental supply and bring down rents.
Aussie Expat Factfile
Around 9.9 million Australian residents left the country ‘short-term’ last year, with 448,700 permanent and long-term departures, according to the Australian Bureau of Statistics.
Some 1 million people in Australia’s diaspora live in the UK (with variations as to their residency/citizenship) while research by Bloomberg in 2007 found around 200,000 Australians living in London alone.
More than 15,000 Australians live in the UAE, according to the UAE embassy in Australia’s capital, Canberra.
If you’re an Australian expat, we’d love to hear from you and learn more about your financial goals and where that property back home may come in.
If you’re a non-Australian property investor and don’t like the sound of the new measures (!) our advisers would be happy to discuss your investment goals, as well as wider tax and portfolio issues.