Introduction to Australia

In Australia, it is necessary to provide the following when applying for finance for a property:

 

1.      Proof of deposit (photocopy of bank account or shares)
2.      Proof of income (2 years tax return). In the event you can’t show a tax return we can arrange a 'Low documents Loan'
3.      Proof of Identity (Photocopy of passport, drivers license, ID book)

Some off shore lenders will also allow foreign buyers to mortgage their own property in their country to raise the necessary deposit for their Australian investment.

 

 

The loan will be for 25 to 30 years and there is no age restriction to it. Finance has been arranged for people 80 years plus of age. It is sensible to take out an “interest only” loan for the first 5 years as there are no taxation benefits on the principal. Some off shore investors have a hard time coming to terms with this concept of not paying principal. If after 5 years you still have the property then the increased rents should contribute to the principal component of the loan.

The loan we arrange will be an access loan meaning that you can put more money in and then take it out as you want it. We arrange a maximum loan for our clients and that means they often have access to more funds than they require for this purchase. They don’t pay interest on the loan we arrange until they draw it down, in parts of in whole. Only on the amount taken is the interest paid.

 

We also have a variety of lenders who will be flexible and not have ongoing costs and heavy exit fees for clients who wish to pay out the loan early. The 2 factors lenders take into consideration are

1)      LVR (Loan Value Ration) They will lend off shore investors to the value of 70% to 80% valuation of the property.
2)      DSR (Debt Service Ratio) Only a consideration once working in Australia:
           - No more than 35% commitment is allowed of income of borrower
           - This is really applied to local residents and not overseas borrowers
           - They do take into account 80% of the rental which is earned on the property

 

 

There are 2 types of mortgages:

 

 

This is for people who earn their money offshore (it has nothing to do with if they have PR or citizenship). Even if an Australian citizen moved to UK and earned money there, they would only be eligible for a non residential loan. The typical loan to value ratio for this type of mortgage is between 70% and 80% of purchase price (calculated on the valuation of the property not the purchase price). Non Residential Loans place no issue on DSR.

 

For people who earn their income in Australia. Typical loan to values are higher and between 95% and 100%. With these loans there is a consideration to the DSR (Debt Service Ratio) and lenders will only commit buyers to 35% of their income as a repayment including any rental income.

If the buyer moves to Australia they can then apply to change it to a Residential Loan and draw back the original 25% to 30% deposit once they are employed. This means that clients can gain access to the funds they put in earlier once they arrive in Australia.

Property investment is the only way one can legally reduce the amount of tax they pay in Australia and the more properties you have the less your taxable income will be. The more properties you own, the greater the asset base and the lower the taxes.
There are no taxation benefits on one’s prime place of residence, only on investment properties. The Australian Government allows people taxation deductions on Investment Properties.

The claims which can be made are:

1)      Any shortfall between the income and the outgoings
2)      Depreciation of the construction of the building
3)      Depreciation of fixtures and fittings
4)      Percentage of the acquisition fees over five years
5)      Inspection costs

 

It is imperative that all property owners do lodge a tax return each year, even if they are not making a profit, as they should record their annual deductions with the Government in order to make a claim against them.

 

In the event the off shore buyer does move to Australia at any time in the future, then these deductions will also be accrued and reduce their Taxable income once in Australia. This is the money you can then put into your investment property.  Once you are working in Australia the property will generally then become cash flow balanced or positive. It is in your best interest to lodge a return each year with the Australian Tax office. Some countries have tax treaties with Australia which means that the person will only pay tax in one country and not both the one they live in and their Australia income.

Once you own the property you can lodge the annual return yourself or we can introduce you to a licensed Tax accountant to do this on your behalf. You will need to allow approx $350 per person per year for this to be done depending upon how many properties and what other Australian income you have each year.

Australian Property investors receive excellent tax benefits from the Australian Government if they buy property to rent out. All tax claims can be accrued annually until the year of sale or on relocation. The capital gains tax is not a set rate and is payable at whatever rate of tax the Person is paying in the tax year the property is sold.

In fact many Australians will sell their property in a year when their income will be lower as the capital gains tax will be less. The Australian Government also allows 50% discount on net profit to individuals. This is not allowed for Trusts or Companies.