Top 10 Questions to Ask A Tax Advisor When Buying Property In Australia



Investing in property in Australia has become a popular opportunity due to its thriving housing market. With residential property prices rising over 20% in the last year and stable market conditions, it’s no wonder why many are considering it as a potential investment option. However, before making any investment decision, it’s crucial to consider factors such as location, deposit, and expenses.

Before buying an investment property in Australia, it’s essential to research the best area with high capital gain potential and low property taxes. Most lenders require a minimum 20% deposit, and it’s essential to consider if a larger deposit can secure a better interest rate and avoid paying additional expenses for Lenders Mortgage Insurance. Additionally, property investment involves various expenses such as upkeep, management, maintenance, advertising, legal fees, and mortgage expenses. It’s crucial to ensure that rental income covers these costs.

Investing in property in Australia is also an opportunity to benefit from tax savings. Expenses related to rental properties are tax-deductible, reducing your taxable income. However, it’s important to understand your investment’s tax implications and seek a tax advisor’s advice.

We have compiled the top 10 questions you should ask a tax advisor before investing in Australian property.

How are taxes collected in Australia?

Australian taxes are administered by the Australian Taxation Office (ATO). They collect taxes through a progressive tax system. In Australia, individuals and companies are taxed on their taxable income, which is calculated based on total income minus allowable deductions. 

The tax rates are progressive, meaning the more you earn, the higher the tax rate you pay. Tax residents in Australia pay tax on their worldwide income. In contrast, non-residents only pay tax on their Australian-sourced income.


Am I Classified as a Tax Resident in Australia?

Your residency status is an important consideration when it comes to Australian taxes. The ATO considers factors such as the length of time you have been in Australia, the purpose of your stay, and your family and business ties to determine your residency status. There are three main residency tests the ATO provides:

  1. Resides Test
  2. Domicile Test
  3. The Commonwealth Superannuation Test

How Does an Investment in Property Offer Tax Rebates?

Investment properties in Australia can give you tax back in several ways. Expenses related to rental properties, such as interest on mortgage payments, property management fees, and advertising expenses, are tax-deductible and can reduce your taxable income. Additionally, the capital gain you make from selling an investment property may be eligible for a 50% discount if you are a tax resident and have lived in the property for more than 12 months.

Is there a Tax Treaty Between Australia and My Home Country?

Australia has tax treaties with over 40 countries, including the United States, the United Kingdom, and Japan. These treaties aim to avoid double taxation, which means you will not be taxed on the same income in both countries. Suppose you are a resident of a country with a tax treaty with Australia. In that case, you may be eligible for certain tax benefits, such as a lower tax rate on certain types of income.

Ask your tax advisor whether your new country has a tax treaty and how to lodge a credit claim.

Australia map

Am I Obligated to Pay Land Tax on My Investment Property?

Land tax is a state tax applied to properties not used as principal place of residence. In most states, the land tax rate increases with the property’s value. The tax is calculated based on the unimproved value of the land, so the more valuable the property, the higher the land tax bill.

Some states also offer exemptions and concessions for certain types of properties, so it is important to check with a tax advisor for the specific land tax requirements in your state.

How Can I End My Tax Residency in Australia?

If you are an expat looking to buy property in Australia and want to stop being a tax resident, it’s important to understand the process. To cease tax residency, you must demonstrate to the Australian Tax Office (ATO) that you no longer have an ongoing connection to Australia. This could involve selling your Australian home, cutting ties with employment and social networks, and moving overseas.

It’s crucial to get professional tax advice to determine your residency status and ensure you take the necessary steps to stop being a tax resident. This will help you avoid paying unnecessary taxes to the ATO.

Is There a Requirement to Pay Stamp Duty on Investment Property?

When you purchase a property in Australia, you are required to pay stamp duty, a tax on the transfer of ownership. The amount you pay depends on the value of the property and the state or territory you’re buying in. For example, in New South Wales, stamp duty ranges from 1.5% to 7% of the property value.

It’s important to budget for this expense and understand its impact on your overall investment. A tax advisor can provide a stamp duty estimate considering your circumstances. This can help you make an informed decision.

When Do I Pay Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit you make when you sell an asset, including investment properties. In Australia, the tax applies to individuals, trusts, and super funds but not to companies. The CGT is calculated based on the difference between the purchase price and the selling price of the property, taking into account inflation and other expenses.

You need to pay CGT when you sell your investment property, but you can also use some strategies to reduce your tax bill. A tax advisor can advise you on how to minimise your CGT liability and help you take advantage of available exemptions and concessions.

Will Foreign Resident Capital Gains Withholding Impact Me?

Foreign Resident Capital Gains Withholding (FRCGW) is a tax that applies to foreign residents’ sale of certain taxable Australian property. If you’re a foreign resident, the buyer of your property is required to withhold and remit 12.5% of the sale price to the ATO.

How Do Tax Deductions Work?

One of the benefits of owning an investment property in Australia is that you can claim a range of tax deductions, which will reduce your taxable income. These deductions include mortgage interest, property management fees, insurance, and depreciation.

A tax advisor can help you identify the deductions you’re entitled to and provide guidance on maximising your claim. They can also assist with preparing your tax returns and ensure you fully comply with the ATO’s requirements.

In Conclusion,

Investing in property in Australia can be a great way to build wealth, but it is important to understand the tax implications that come with it. Asking the right questions to a tax advisor before making a purchase can help you make informed decisions and avoid unexpected surprises down the road. 

By doing your due diligence and consulting with a professional, you can make the most out of your property investment and ensure that you stay on the right side of the tax law. If you have any questions or would like to learn more about property investment and tax planning, reach out to the Odin Tax Team for expert advice and guidance.


Frequently Asked Questions

Yes, you need to report rental income and property expenses on your tax return. If you incur a capital loss, it can offset other taxable income.

Expect to pay land tax, stamp duty, and Foreign Residents Capital Gains Withholding tax. Capital gains tax applies when selling property. Foreign buyers may face surcharges.

Professional advice from tax agents or property experts is tax deductible if it relates to earning income. Deduct expenses to reduce tax payments.

Qualify for the CGT principal residence exemption by living in a property for 12 months or more. Deduct property expenses to reduce CGT as an expat or investment property owner.

Consult a tax agent about potential tax payments. Ask about residency, stamp duty, land tax, and efficient tax bill reduction.

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