» Foreign investment

Foreign investment in Australian property: how it works and how to reap the benefits

BMT team — Sun, 14 Mar 2021 22:29:37 +0000

Foreign investment is an important part of the Australian economy and helps it reach its full economic potential. For example, foreign investment in Australian increases tax revenues of the federal and state governments that can be used to fund parts of the community like hospitals, school and other essential services. Beyond the economic factors, foreign investment enriches the Australian climate with diversification, increased competition and performance. If you’re a foreign resident to Australia, and thinking about investing in residential property here, this is what you need to know and how you can claim tax deductions like depreciation. In this article, we will cover: What is foreign property investment Rules and regulations Foreign investment and depreciation What is it and how does it work? If you’re a foreign person to Australia (including temporary resident or foreign non-resident), you can directly invest in Australian property. However, there are several rules and regulations that apply to you and the type of property you can invest in. Here is a short overview of some of the key rules that apply. FIRB consultation Before deciding whether to invest in Australian property, it’s important to read through the Foreign Investment Review Board (FIRB) guidance notes. These outline what is required, processes, what you can and cannot invest in and any additional fees you may be subjected to. Property type The types of Australian properties that you can invest in include: New dwellings Established dwellings to live in (i.e. as a main residence, not investment) Properties for redevelopment Off-the-plan properties Vacant residential land This means you will generally be prohibited from purchasing established property, like a second-hand house, as an investment. But you can apply for what is called an ‘exemption certificate’. If you’re successful in your application, the exemption certificate will allow you to purchase one unspecified residential property (i.e. one excluded from the list above) in a particular state/territory without having to apply for approval. Taxation requirements Once you own an Australian property, you will be subjected to Australian taxation requirements. This means you will need to get a tax file number and report all rental income and expenses by lodging an Australian tax return. Through this tax lodgement process, you may be required to pay a vacancy fee. This fee was introduced in 2017 and is an annual fee that must be paid if the property isn’t residentially occupied or leased for more than six months (183 days) in a year. As a foreign investor, can you claim tax deductions and depreciation? Claiming tax deductions comes hand-in-hand with reporting taxable income in Australia. This means you can claim deductions when lodging their Australian tax return. Just some of the deductions you can claim are expenses for are interest repayments, insurances, property management fees and much more. A tax depreciation schedule prepared by a specialist quantity surveyor will also allow you to claim depreciation on the property. Depreciation is the natural wear and tear of the property and its assets over time. You don’t need to spend any money to claim depreciation and it has the potential to boost cash returns by thousands. Case study – claiming depreciation in practice Nina is a permanent resident of Beijing, China. She purchased two Australian investment properties at the start of the 2020-21 FY. The table below provides information on each of her new residential investment properties and the first-year depreciation deductions she could claim from each. When combined, Nina’s annual taxable income from the properties is $67,600 and total first-year depreciation deductions come to $32,622. The table below demonstrates how depreciation alone affects the amount of tax she needs to pay. By claiming depreciation alone, Nina has a tax liability of $10,602 when lodging her Australian tax return. Without depreciation, she would’ve been faced with a tax liability of $21,970 (assuming a 32.5 per cent tax rate) – therefore making an annual saving of $11,368, or approximately $219 per week. BMT Tax Depreciation specialise in comprehensive tax depreciation schedules for both Australian and non-Australian residents. To learn more about claiming depreciation, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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Australian expats and foreign investors to face tax reforms and CGT exemption lift

Chan Naylor Team — Tue, 03 Oct 2017 23:54:44 +0000

Under the proposed housing affordability laws, Australian expats might see an increase in tax liability when they sell their Australian homes. While living overseas, they could lose the Capital Gains Tax (CGT) exemption on a home which used to be their main residence to give Australian buyers an opportunity to purchase properties. The reform is part of the policy changes in property investment aimed to improve housing affordability. Currently, Australian residents are fully exempt from CGT on the sale of their main residence throughout the ownership period. The capital gain is included in an individual’s taxable income and calculated as part of income tax. Australian residents are also partially exempt if the house was their main residence for only part of the ownership period. The absence rule allows them to treat a home as their main residence for CGT purposes for an unlimited period of time as long as they don’t rent it out. Meanwhile, Australians living abroad for work can qualify as non-tax residents, which removes their Australian tax liability while they live abroad. However, the new policy will no longer grant them the absence rule or offer a partial exemption for the period when their home was their main residence. Foreigners who live and own property in Australia, on the other hand, are exempt from CGT as long as they are not foreign residents when they dispose of the home. There is, however, the new ghost house levy for foreign owners of Australian property in case it is unoccupied or available for rent for at least six months of the year. Their non-final withholding tax upon disposal of a taxable Australian property has been increased to 12.5 per cent of the sale value as well. Its threshold was also lowered to $750,000. The proposed changes apply to properties bought from 7:30pm on the 9th of May 2017, while those who have purchased their properties before that would have until 30 June 2019 to sell before losing the exemption. Investors who own a home for over twelve months, which is not their main residence, get a 50 per cent deduction on their CGT as well. However, non-residents are not entitled to the discount. Others believe tax incentives are higher than incoming rent and that the housing affordability crisis will remain as long as the government does not reform the CGT exemption and negative gearing. However, some people believe the reform will only affect foreign investors who do not vote. A fairer approach could be to tax the capital gain based proportionately on the period of non-residency of the ownership period, instead of just determining whether the person is a resident or not at the time of sale. What can you do? It is important to seek professional advice in navigating the different market conditions in Australia. Chan & Naylor does not sell properties so it remains unbiased. We would love to help you whether you are a beginner or seasoned property investor. Click here to schedule a chat or call any of our local offices near you. If you like what you are reading, subscribe to our newsletters now at www.chan-naylor.com.au. Disclaimer To view the original article, click here.

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Foreign residential investment cheat sheet

BMT team — Tue, 01 Nov 2016 23:36:07 +0000

Foreign investment in Australian real estate – both commercial and residential – has increased dramatically over the past decade. Despite increased taxes for foreign buyers and restrictions to foreign lending in the past year, residential foreign investment seems set to continue in the foreseeable future. To get up to speed on the rules, issues being faced and where foreign investment is heading we have summarised a brief overview of the current situation. Why is Australian an appealing market for foreign property investors? First of all, we have a relatively stable economy and political system, which is a suitable environment for a long term investment. Secondly, the Australian property market has promising growth prospects as well as further development opportunities. On top of this, our lifestyle is hugely appealing to foreigners. For Asian investors, particularly the Chinese, there are further drawcards. In their homeland, Chinese property owners cannot purchase land as it belongs to the state. They can enter a contract to use land for residential purposes, but it is for a maximum term of seventy years, after which the property is passed back to the Government. In comparison, Australia’s property ownership laws are appealing, giving Chinese investors the chance to own the property for life and get greater returns from their investment. By investing in Australian property and using it for income generating purposes, they’ll also have access to property depreciation benefits, which they do not have back home. Furthermore, there are established strong ties between Australia and China, as well as our other Asian neighbours. Some Asian investors may have family members living here or have future plans to migrate themselves, and there is a common desire for their children to receive an international education in Australia. What are the rules for foreign ownership and what changes have been made? Foreign investors wishing to purchase property in Australia must first apply to the Foreign Investment Review Board to gain permission to purchase Australian real estate. Under Australian law, foreign investors cannot buy existing homes; they can only purchase new houses or apartments, or off the plan properties and vacant land. The aim of this is to stimulate new developments and housing supply, and in turn create additional jobs and support economic growth. Foreigners living in Australia for no more than twelve months can buy one existing home, but they must occupy it and then sell it when their visa expires. In the past year there have been notable changes to the taxes that foreign buyers must pay. When the New South Wales budget was handed down on June 21 this year, a 4 per cent stamp duty surcharge was introduced for foreign investors, and a 0.75 per cent land tax surcharge, the latter coming into effect from 2017. In addition, foreign investors will no longer be entitled to the twelve month deferral for the payment of stamp duty for off-the-plan purchases of residential property. This decision followed similar legislation from the Queensland and Victorian state governments earlier this year. In Queensland there is now a 3 per cent stamp duty surcharge, while in Victoria there is a 7 per cent surcharge on residential stamp duty and a 1.5 per cent surcharge on land tax. The big four banks this year also placed some restrictions on foreign buyers, curbing lending to those without domestic incomes, making it harder for them to be eligible for home loan applications. This clampdown reportedly followed a series of shoddy loan applications from foreign investors. Foreign investment figures From 2010 to 2015, foreign investment in Australian property grew tenfold from $6.09 billion to $60.75 billion. In the second quarter of 2016, foreign purchases accounted for 23.9 per cent of all property sales nationally. This was highest in Victoria and New South Wales, at 30.8 per cent and 25.4 per cent respectively, and around 20 per cent in Queensland, South Australia and ACT. Despite what we hear in the media, not all foreign investment is from China, and they don’t yet own as much Australian land as other foreigners. While China has led the way in the past year, other countries in the top ten for investment in Australia include the US, UK, Singapore, New Zealand, Germany, Malaysia, Hong Kong, South Korea and even the Netherlands. And in terms of agricultural land, China only owns about 0.5 per cent of our national stock, compared to 7.2 per owned by British investors. In the last quarter, foreign property sales dropped from 24 per cent down to 21 per cent, most likely in response to the tougher lending conditions and increased government taxes. Current concerns and happenings The lending clampdown from our major banks has led to concerns that foreign buyers will not be able to settle their apartment deals. This could lead to apartments not being completed and further issues for developers. Some developers have already started to put measures in place to minimise this risk and protect their projects, such as having a cap on the ratio of foreign buyers for their developments. Furthermore, when off-the-plan sales fall through, the property is no longer considered new. This means foreign buyers will no longer be able to pick up these ‘second hand’ properties (due to our foreign ownership laws) and may even turn to other markets. This leads to the second issue, which is a potential oversupply of apartments in the near future, particularly in inner-city areas. These concerns come at the same time as a report from Morgan Stanley estimating a surplus on 100,000 apartments in Australia by 2018, which would have ramifications for our housing market and economy. The future of foreign investment in Australia Despite a recent decline in foreign property transactions, many industry experts believe that the tighter lending restrictions and extra taxes won’t do much to curb foreign investment in the long term. The main drivers for investing in Australia are still there, which means there will still be demand, and foreign buyers who are truly interested will find another funding avenue, […]

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