The information on this page is intended as a guide to the aspects of Australian taxation that need to be considered by Australian property investors living out of Australia. You will also need to address the taxation issues in the country of residence.

No person should act solely on the information contained herein, as the complexities of tax issues would require due analysis of each individual’s circumstance prior to any decision. It is important to consult an expert tax advisor when considering your particular purchase in Australia.

Taxes on acquisition

Stamp duty is payable on the purchase of a property. It is a state tax and is charged either at a fixed rate or on an increasing scale depending upon the value of your property. The rates vary from state-to-state.

Taxes on holding

Local government authorities levy rates to sustain local services. States also levy land tax on an annual basis. The level of both of these taxes is usually quite modest.

Goods and Services Tax (GST)

GST is charged at a flat rate of 10% and is charged on the supply of goods and services, including real estate. It is essentially sales tax as it is the consumer or end user who ultimately bears the tax.

Taxes on income

Net rental income is taxable at the appropriate tax rate for the investor. Taxable Income is calculated as your gross rental income (from all properties owned) less any allowable deductions incurred in earning that income.

For tax purposes, expenses incurred in the derivation of property income in Australia are deductible to the extent that they offset that income. Any excess expenses may be carried forward as losses indefinitely.

Allowable deductions include interest from loan finance (subject to thin capitalisation restrictions), local government rates, insurance premiums, maintenance expenses, estate agent’s fees and depreciation of buildings and the fit-out.

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. If your expenses exceed your rental income then no income tax is levied. The annual loss may be carried forward to offset future Australian income or capital gains.

Non-residents are generally only taxed in Australia on income that is derived from an Australian source. Only if you receive Australian property rental income will you need to lodge an Annual Income Tax Return for the property income only.

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 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.

Land Tax

This is an annual state tax based on the ownership of land and, in some states, on the usage of land. Land tax is levied on the total unimproved value of the land at a specified date. The tax rates and thresholds vary from state to state and over time.

Inheritance tax

Australia does not have an inheritance tax. However, the capital gains tax rules are designed so that the unrealised tax burden on inherited property is effectively transferred to the beneficiary for them to deal with when the property is ultimately sold.

Tax reporting obligations

Property owners, whether resident or non-resident, deriving assessable income in Australia need to lodge an Australian tax return and pay tax on net property income at the appropriate rate.

Once you have acquired a property with the intention of earning income from rent, you must register with the Australian Taxation Office and obtain a tax file number. You will need to complete a Tax File Number Application in full, accompanied by the required proof of identity documents.

Australia’s financial year is from July 1 to 30 June 30. The return is due for lodgment October 31 following the year of income. More information can be found at Australia Tax Office website at www.ato.gov.au.