It is common for many intended migrants to struggle with the dilemma of whether to keep their previous home when they migrate to Australia.
Usually the main motivation to sell is to free up the equity so it can be used to pay for a new home down under. This is a sensible option as there is no tax relief in Australia on your private home mortgage or rent, so it is ideal to have the minimum debt on this.
If you are fortunate enough to be able to keep your home, or indeed unfortunate enough that the property market looks like you may not realize a satisfactory price or sell in a reasonable time, then keeping your property may be an option that you decide to pursue.
Under Australian tax regulations, anyone living permanently in Australia is considered a Resident for tax purposes and is subject to income and capital gains tax on their worldwide income. So if you have migrated to Australia under a Permanent Residency Visa then you will have tax implications on the rent received and future sale of the property. These may not be too harsh, but need to be considered.
From an annual rental perspective, the gross rent is assessable but can be reduced by all expenses of owning the property such as maintenance, agent fees, insurance and also any interest paid on a loan that was originally taken to purchase the property. This may result in a low net rental and minimal tax.
Capital Gains Tax would be payable on the property when sold, but only on the increase in value over and above the market value on the day of relocation to Australia. The improved value during the time prior to your relocation to Australia is not subject to tax whatsoever. You will need to get a sworn valuation from a licenced valuer or surveyor to establish the price, and then that becomes your tax cost for Australian purposes.
If you sold for less than this value, then a tax loss would result in Australia that could offset other taxable capital gains.
There are two important exceptions that can assist your tax situation in this regard.
- If you lived in the property as your main family home prior to relocation to Australia then it can be Capital Gains tax free as your residence for up to 6 years or the date you move into another owned property as your new residence. Living in a rental property will not affect this. Once you start living in your owned residence then the property begins to be taxable on a pro rata basis. Note the rental remains taxable throughout.
- The other is if you move to Australia under a Temporary Visa which now means that you do not have to declare any foreign income or gains, only if the property or investment was in Australia. It is worth checking your visa type as it can make a difference on your overall tax implications.
Whether you decide to keep your property or not, the Australian system may initially seem daunting, but there are sensible aspects that ensure that you are taxed in a fair and equitable way, and even some nice surprises that may mean you aren’t even taxed.
