Unlocking the Secrets of Rental Property Taxes: A Comprehensive Guide for Non-Residents

If you are renting out your current Australian property while moving abroad or considering purchasing investment properties in Australia while abroad – you must read below.  

In this blog, we break down the tax considerations relating to income tax, capital gains tax, and some ways to mitigate those taxes. If you have any questions about Australian property and taxes on Australian property, especially as a non-resident, please reach out. 

Income tax with your properties.  

One thing you need to be wary of as a non-resident for tax purposes in Australia, is you are taxed at 32.5% from the first dollar. That means if your property in Australia is positively geared, you are paying 32.5% of every dollar above that to the Australian Government. 

Capital gains tax for properties in Australia.  

With taxable Australian property, you are still under the obligation as per every other Australian tax resident to declare that capital gain on your disposal of that asset. 

So notwithstanding your tax residency status, there is still the obligation to declare this and potentially pay tax on it. And as mentioned before, the tax rates differ.  

Other tax considerations for non-residents holding property in Australia. 

  1. You are no longer able to access the main residence exemption, this may affect you significantly.  
  1. Unable to access the 50% capital gains tax discount that’s available for Australian tax residents.  

Capital Gain Reduction Strategies 

One manner to mitigate the loss of the main residence exemption is to continue to utilise the six-year rule, which is still available to you as a non-resident. 

What the six-year rule says is that you may be able to rent your property out for up to six years and still be able to access the main residence exemption (Considering all conditions are met.) 

Another manner to manage your Australian tax debt is by using genuine deductions as you would use as a normal Australian tax resident. 

Rental Property deductions to utilise can be: 

  • bank interest 
  • insurance 
  • body corporate fees 
  • utilities  
  • council rates  
  • depreciation costs 
  • pest control  
  • gardening 

Another strategy that I’ve utilised for my clients is to reduce their tax there on their rental properties. Is by contributing money to superannuation. This relates to your circumstances. One aspect here that we need to consider is instead of you paying 32.5% in your name, you can potentially only pay 15% tax when you contribute to super, and then with that contribution, you can claim it as a tax deduction in your name, thus reducing your income tax in your name to effectively zero. 

If you want to learn more about Australian taxes and how they relate to your property, please do not hesitate to reach out.