Alright folks! It’s Q & “Accounting” time! Yep, on the couch today we’re talking all things tax! Here to help us wade through the grey area is Frank Azzopardi from our friends (and accountants) at YK Partners. If the name sounds familiar, it’s because Frank joined us back at Episode 48!

So, we’ve received a couch-load of questions about tax lately, and quite the few of you have these questions because you’ve “temporarily departed” overseas—you’re Aussie Expats working in another country, but investing in properties back here. And as you know, this can be quite the pickle for tax purposes!

(The rest of you simply want to know what you can and can’t claim. Fair enough.)

Trying not to number-crunch the neurotransmitters in your brain, here are what B1 & B2 + Frank discuss:

• Is there a tax-free threshold when you live overseas?
• What is a Double Tax Agreement and what does it mean for you?
• How does foreign tax credit work?
• How do you offset tax loses?
• Tax Talking, What’s the difference between a PPOR and an IP?
• Can you claim tax on Lenders Mortgage Insurance (LMI)?
• What really constitutes “Repair” or “Capital Improvement”?
• Can you negatively gear a property as an expat?
• What is the “6 Year Rule” of Capital Gains Tax?
• Can you avoid Capital Gains Tax?
• What’s the risk of loan in two people’s names (joint ventures)?
• What’s the tax cut for your kids when they inherit your property?

Some of the helpful resources mentioned today are:

• Income Tax Rates – Find out more here
• What are Tax Treaties or Double Tax Agreements (DTA)? – Find out more here
• LocationScore Research Tool – Explore it here
• Episode 1 of Season 2 with RealEstate.com.au – Watch here

And… The questions discussed are:

From Andrea

“First of all I am loving the podcasts. I listen to them over and over. Secondly, as an Australian expat, living overseas long term but preferring to invest my money back home in Australia, are you able to do a podcast directed at Aussie expats wanting to invest back home but are not sure how to go about it? If you could talk about it or bring someone in? If you could talk about things Aussie expats need to be aware of ie—the different rules that apply regarding capital gains; tax depreciation; tax credits; services expats can employ to assist with the fact we can’t make a trip every week to attend viewings and sign papers. Having bought 4 places in the last few years, I have not completed my PIPA education yet—I am nervous about giving too much advice. Thanks and keep up the good work. I’ll be ready to buy again soon so will likely be in touch for assistance in this.”

From Salim:

“Hi Guys. I listen your podcast regularly and leaning a lot!! I have a question and have been searching for the answer for a while; but no luck so far (asked same questions to few accountants but all of them have different opinions)! I bought an investment property last year in Melbourne in July 2016 (that time I was living and working in Sydney) but very soon, I am moving to Melbourne and am living in my investment property as principal residence.
1. I paid around $7500 as LMI. Can I claim this for tax deduction?
2. Can I offset the interest in my Tax?
Any help would be greatly appreciated!! Look forward for your resonance. Thanks.”

From Nick:

“Hi guys! Really enjoy the podcast—you have both helped reshape my approach to property investment and I’m currently in the process of developing an investment strategy that suits the specific circumstances of my partner and I, rather than rushing into the often-scary Sydney market.
We’re a couple currently renting in Sydney with a combined income of over $220,000/year, around $80,000 sitting in the bank, no kids at the moment (but probably will within the next 2 years); and we’d like to get our foot in the door of the property market. One challenge we face is a high likelihood of moving overseas for work within the next 5 years. If we buy as owner/occupiers we’ll be looking at 2 bedroom apartments in the medium-priced suburbs of Sydney – right at the limit of our purchasing means. Should we move overseas for work, my understanding is that we won’t be able to negatively gear the property (since our income tax will be overseas). It does appear that some other countries have negative-gearing policies, although it’s not clear whether losses incurred from overseas investments are eligible and the rules differ from country to country. My feeling is that stretching to buy an apartment in Sydney for ourselves now could force us to sell early if we move overseas and the repayments are strongly outweighing the rental income—not a situation we want to be in.
If we instead look at rent-vesting and aim for a cheaper investment property in a growth location somewhere outside of Sydney, with a path to getting it positively geared in the short-term, this seems like a lower risk strategy that still gets us a start on our journey to a property portfolio. I’m hoping the principles you talk about have sunk in a bit and I’d love to hear if you think I’m on the right track.
I think our situation is quite common for a lot of young professionals. What tips can you give from both a tax and property selection point of view to the many Australians working overseas or planning to work overseas, who still want to invest in the Australian property market and start building a passive income for their futures?

From James:

“Hi Ben & Bryce. With the strategy of accumulating 3–5 good capital growth properties and potentially selling 1–2 in the long term future upon retirement, would we not be best to (if possible) move into each property for minimum of 12 months to avoid capital gains tax when the properties are sold? Thanks for such a valuable podcast I always listen to each episode a couple of times a week. Regard, James

From Simon:

“Boys. Love the book and am now an avid listener to your podcast each week. I have a land tax question for your next Q&A session that no one can seem to give me a clear cut answer.
My wife and I have a PPOR (Newcastle), as well as one current investment property also in Newcastle. Recently we have just purchased an apartment off the plan which is not due to be completed until late 2018 at the earliest.
Currently all three properties are in both our names—50/50 share.
My question is regarding NSW land tax which the 2017 threshold is approximately $549k. (Lets just say $550k for ease of rounding off)
Does this mean that as a couple we have a combined threshold of $1.1 million or despite having two people owning these properties do we still have to come under the $550k to avoid land tax as a couple?
If the latter is the case, what is the best way to minimise our exposure to paying land tax if we wanted to continue to purchase investment properties in NSW? Should our next purchases be in separate names?
Thanks for your help. Simon.”

If you like this podcast: “Q & A-ccounting with Frank Azzopardi—Tax Deduction, Capital Gains Tax, Land Tax and Aussie Expats”, don’t forget to rate us on our iTunes channel (The Property Couch Podcast) and our Facebook page. If you have any questions or ideas, feel free to drop us your thoughts here: New Topics