Should an expat own property? Owning property has been a staple part of an Australians wealth building strategy since the dawn of our country.
Whether it’s the dream of owning a quarter acre block or making the pilgrimage to Bunnings on a Saturday morning to buy paint to renovate a room, property ownership has been part of Australian culture for many years.
Many years ago the motivations for purchasing and holding property didn’t change when you moved overseas and became an expat however since May 2012 the financial reasoning behind property investing as an Australian expat has diminished rapidly since both the Federal and state governments started actively targeting expat property owners.
In today’s world the motivations to own property as an Australian resident are very different to that of a non-resident and we’ve highlighted below some of the key issues that Australian expats need to be aware of:
No Capital Gains Tax (CGT) Relief
Up until May 2012 Australian expats, like Australian residents, we able to take advantage of the 50% CGT discount. How this worked is that if you were to hold a property for longer than 12 months and then sell it, you would only be liable to pay CGT of 50% of the capital gains. In the 2012 Federal budget the government removed this relief and Australian expats now need to pay 100% CGT of the gains a property accrues whilst they are a non-resident. The CGT applicable is also calculated at the non-resident marginal tax rate which starts at 32.5% on the first dollar.
Increases in State Taxes
Recently we have seen Australian state governments introducing higher taxes on properties that are owned by non-resident Australian citizens. These state taxes have become such a high expense for expats that we have seen income yields drop as far down as to 1% which makes very little investment sense.
Removal of the Main Residence Exemption (MRE)
In 2017 the Australian Federal Government announced that they would going to remove the entitlement of Australian expats to utilise the Main Residence Exemption (MRE).
This legislation passed through parliament and 2019 and on the 1st of July 2020 Australian expats who formerly called a house in Australia their family home were subjected to the most punitive tax change in recent memory.
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