Leaving Australia means leaving your home. Unless you’re intending to return to Australia in the foreseeable future, this means deciding whether you want to keep or sell that property.
When you move overseas on a permanent basis you cease to be an Australian resident and become a resident of your new home country. This means you need to consider the tax consequences on your Australian property from both an Australian perspective and in the tax jurisdiction of your new residence.
Convert Your Former Home Into An Investment Property
When you hold onto the residence as an investment property the rental income becomes taxable income in both Australia and in your new home country.
Australian Taxes
As a non-resident of Australia, renting out your Australian property means you will need to continue to lodge an Australian tax return.
If you have a mortgage on the property then factoring in other property costs (such as repairs, insurances, agents fees, depreciation and land tax) then your property may be negatively geared. This may result in tax losses that you carry forward until you have other Australian income to offset against these losses.
If your rental property generates a net profit, then this profit will be taxed at the marginal non-resident tax rates. Since there is no tax-free threshold for non-residents, you would be paying Australian tax from the first dollar of profit.
Overseas Taxes
The tax consequences in your new place of residence will depend on which country you are living in. There are a vast range of rules and understanding your requirements in your new home country will be important.
Not all countries will require you to report your Australian sourced income and some countries may have special exemptions if you don’t bring the income into the country. You may also find that there are vast differences in what deductions you can claim against this income.
Double Taxation Relief
When you are living in a country that requires you to report your Australian sourced income you will likely find some relief through a double tax agreement. Typically, a double tax agreement will ensure that you don’t pay more than the tax than would apply if you were only taxed in the country with the highest tax rate. Sometimes a double taxation agreement is not required and the residency country will provide a credit under its domestic laws for foreign tax paid on overseas income which is also taxable in the residence country.
The most common form of double tax relief is an offset foreign tax paid. This means that any Australian tax that is paid would be credited against the income tax that your new home country assesses on your Australian sourced rental income.
Selling Your Australian Residence
If you decide to sell your Australian property while you are a non-resident then you must consider capital gains tax (CGT).
Australian Capital Gains Tax
Ordinarily an Australian resident does not have to pay CGT on their main residence. However, once you become a non-resident you lose this exemption if you sell the property while you are non-resident.
This means that if you sell your Australian property as a non-resident, you would be required to include the capital gain (or loss) in your Australian income tax return. You would be taxed on the capital gain at your marginal non-resident tax rates and you would most likely not be able to benefit from the full 50% CGT Discount.
There are some exceptions to this. If a specified “life event” occurs within the first six years of becoming a non-resident, then the main residence exemption may continue to apply. These life events are all events that you cannot plan for, such as death, terminal medical condition, or a marriage breakdown.
Overseas Capital Gains Taxes
In the same way as Australian rental income may or may not be taxed overseas, your capital gain may or may not be taxed in your new country of residence. Any concessions, tax relief and applicable deductions may also differ in your new home.
As with tax on rental income, there may be double taxation prevention measures through a double tax agreement.
Seek Appropriate Advice For Your Situation
Since taxation in your new home will be quite different to the Australian taxation system it is important to seek advice from a local tax adviser for specific advice.
An Australian chartered accounting and tax advisory firm experienced in dealing with international tax issues, CST can advise you of the tax consequences of your decision to hold or sell your Australian property.
Note that a tax agent cannot advise you on whether you should sell or keep your property. This decision needs to be made with regards to your short and long term personal and financial goals.
