Global Prestige Realty - Australia - Malaysia - Singapore - Thailand | Foreign Investor FAQ

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Foreign Investor FAQ

1. How easy is it for a foreigner to purchase property in Australia?

The Australian Government has warmly welcomed and encouraged people from all parts of the world to make this country their home, based on the principle espoused by Nelson Mandela that "a country belongs to all those people who make it their home". They have also welcomed with open arms investment in Australian real estate by foreign nationals. Despite the multi-cultural basis of Australian society, foreign ownership is monitored and controlled by the Australian Government. As such foreign property investment may require approval by the Foreign Investment Review Board (FIRB).

2. How will I find the right property?

Foreigners purchase property in Australia for many reasons:
• Student accommodation as a family member is about to commence or is currently studying in Australia.
• A second home for vacations or business trips to Australia.
• For Investment purposes.

3. What taxes am I subject to?

Australian Property Investors need to be aware of four main Australian taxes:
a. Income Tax
b. Capital Gains Tax
c. Goods & Services tax
d. Stamp Duty
It is important to note, that as with the Malaysian Taxation system, each individual may be subject to different tax requirements. It is essential to consult with a tax professional in order to decide on the best way to structure your Australian Property Investment. In many cases this will enable you to minimize your tax requirements.

a. Income Tax

Income tax is levied on your Taxable Income not total income.
Taxable Income is calculated as your gross rental income (from all properties owned) less any allowable deductions incurred in earning that income. If a surplus of income results, tax is levied at the prevailing non-resident rate of tax.

Common deductions you will be able to claim include:
• advertising for tenants
• agents commission for managing the property
• gardening and maintenance
• insurance - property and contents
• interest on loans used to finance the property
• lease preparation costs
• rates and land tax
• travel and car expenses
• telephone, facsimile and postage
Travel costs incurred when visiting Australia can be claimed, provided they are incurred principally to inspect the rental property and are reasonable.

Australian Income Tax Legislation requires that in order to claim any deductions, you must have documentary evidence to substantiate the claim. These records must be kept for five years after lodging the return to which they relate. Failure to do so may result in your claim being disallowed and penalties being charged. The Australian Government also provides incentives for property investors in the form of additional tax deductions. These include:
• Depreciation - on furniture, fittings and equipment used in the rental property.
• Building Write-Off - 2.5% per annum of construction cost of new buildings.
• Borrowing Expenses - amortization over five years for the full cost of establishing a loan.
It is important to note that if your expenses exceed your rental income then no income tax is levied. The annual loss may be carried forward indefinitely to offset future Australian income or capital gains.

As the income taxation system is federal based, any loss made on a property can offset the income or capital gain of another property regardless of the property’s location in Australia.

b. Capital Gains Tax

In Australia, Capital Gains Tax is levied on profits made on the sale or transfer of assets. When you sell your property, the excess of the sale price over the purchase price is a capital gain. When determining how much of the capital gain is taxable, allowance is made for any selling costs and improvements.

Should a capital loss be incurred, then no tax is applicable and the amount of the loss is available to be carried forward indefinitely to offset any future capital gains. However, if a surplus still exists and the property has been owned for longer than twelve months, then half of the gain is included as part of your taxable income and may be further reduced by any income or capital losses made either during the same financial year or any previous year.

According to Mr Roland Voon of Lloyd Meridian Legal, the current CGT rate payable for non-residents is 29%. Mr Roland Voon charges $1,800 legal fees for non-residents settlement of CGT cases.

c. Goods & Services Tax

Australia’s Goods & Services tax (GST) is a 10% tax on all goods and services provided within Australia. For a Malaysian property investor this may mean 10% may be charged in connection to property management services or any building works (plumbers, electricians etc.) that may be required. It is important to note that recent changes in tax legislation has meant that GST is not payable by foreign (non-resident) property investors for certain services provided and that Tax credits are available if this GST has been paid. Speak to a tax professional for more information on these changes.

d. Stamp Duty

Stamp Duty is a state based tax that can vary substantially depending on which state you decide to purchase your property. The duty is payable on amounts borrowed for mortgages in all states.

For property which are sold “off the plan”, purchasers will be able to enjoy substantial savings in Stamp Duty payable. “Off the plan” refers to purchase of property before construction has commenced. Currently, only the State of Victoria enjoys such benefit.

Also note that stamp duty for the value and building will increase in proportion to the state of completion of the building. In such cases, stamp duty will be cheaper for those who sign the SPA or Contract Agreement before the commencement of the construction of the building. For those who sign at a later stage, stamp duty payable increases based on the land value and the value of the construction works attributable to the development.

4. What other outgoings am I subject to?

Other outgoings includes:

• Body Corporate
• Council Tax
• Water Rates

Body Corporates deal with maintenance and other matters related to the building and owners interest. The Council is responsible for the streetscape, including pubic lightings and for garbage collection. Water Services are responsible for water and sewerage. All these charges are payable only upon the settlement of the full payment.

5. How does the Sales and Purchase process work?

Contracts will need to be exchanged within 2 weeks of holding deposit being taken. The deposit is either held in interest bearing trust account or a normal trust account with the protection of the local state Sale of Land Legislation.

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