The following is general information and is not to be viewed as advice. Please consult with you Accountant or Financial Planner for advice on your personal circumstances
Capital Gains and Tax
In Australia, if you purchase property as an individual and keep it as an investment for longer than 12 months, then you are subject to a 50% reduction in Capital Gains Tax when you sell the property.
The other 50% is added to your income and tax is payable at the appropriate tax rate in the year the property is sold.
Negative gearing simply means ‘Tax Minimisation’. When you own an investment property, you can claim expenses such as interest payments, rates & taxes, property management fees, maintenance, depreciation & building write-off against the income the property derives.
If the expenses are higher than the income, the Australian Tax Office (ATO) allows you to claim the difference against other sources of income, your Pay as you go (PAYG) job for example. This is called negative gearing and is a way many investors reduce weekly contributions toward their investment properties.
Through the ATO, if you are a PAYG employee, you can complete a ‘Tax Variation’ form as soon as a tenant signs a lease, and claim your negatively geared tax refund from your employer on a weekly or fortnightly basis, rather than covering the shortfall yourself and claiming back at the end of the financial year.
Tax savings should always be viewed as a secondary bonus, and not your prime purpose for purchasing an investment. Capital growth is what you are after and as long as your property is growing by more than double that of your after-tax weekly contribution that is deemed a sound investment.
Capital Gains and tax
As a non-resident, if you keep the property for more than 12 months, you may be entitled to a 50% discount on capital gains tax (CGT).
You expenses incurred against your property can be offset against any income you receive in Australia. If you do not receive any income, the losses can be stored and eventually offset against the capital gain your property makes, when you eventually sell it.
The costs of visiting Australia for the purpose of maintaining your investment property or meeting with your Australian property manager may also be added to you cost base and deducted from capital gains when the property is sold. (Please seek professional taxation advice from a qualified tax specialist)