The conundrum of how to avoid paying tax on property you have just spent time and money to build and sell at a good profit. Ah, you might be thinking, ‘if you can solve that one for me then you’ll be classed as a genius.’
Truth is, it is not really that complicated at all. Others might tend to make it complicated by having you engage in all sorts of clever tax measures to reduce your taxes on profits that you have rightfully earned. Only to be slugged with a massive bill of services by your accountant, and probably a lawyer as well. Is it really worth it? Surely you have better ways of spending your scarce time than by getting all complicated and consumed caught up with accountants and lawyers to scheme on your behalf, only to pay them the money you think you have just saved yourself paying to the IRS? Indeed.
Might it have been easier to just pay the tax office what they say you owe? Probably.
Technically one does have to pay the tax, but you might not necessarily have to be the one paying the tax, someone else in the transaction can pay it for you. Not even some of it. But all of it. Did you think of that? No.
This is not going to be a dissertation of all the ways to avoid paying tax on property, but it will remind you of the kind of taxes you will in fact be up for when you take matters into your own hands and do things the usual way. Let us go though some of the taxes you need to take note of in contemplation of property investing in Australia.
Capital Gains Tax (CGT) applies when you have held the property and earned income. Such as receiving rental income or running business activity. If the seller lived in it, this is exempt. But living in a property just to avoid this tax is not a viable way to make a profit as you have to stay in it a good length of time. And this is going to really slow down your profit making just for a smaller gain – not worth it. Furthermore, if you are a foreign resident who starts to reside in Australia before the sale in order to gain exemption from this tax it will not work. Please do not allow yourself to receive a rude shock when you find out it has not worked. If it worked, then we can comfortably guess that you have paid back that CGT you just saved, by paying other taxes because of you have resided in Australia to get qualified for the exemption. Currently there is the possibility of change to this rule of allowing foreign residents to qualify for exemption at all. If enacted, it takes effect on all activity occurring from 01 July 2019. So, please beware.
Goods and Services Tax (GST) applies whether or not you are earning income off of a property while holding it. And this applies even to vacant blocks you wish to re-sell. Unless the property is your own home, which means you are not in the business of making a profit from real estate, it is unavoidable.
Land Tax (LT); applies in the same kind of way as GST above.
Foreign Ownership Surcharge (FOS), if you are not Australian you will pay this too.
As a foreigner, you should factor in all the above taxes as likely payable by you when considering your profit margin.
Now there will also be the Australian business tax rate and the Australian personal tax rate to consider if you have resided in the country for tax purposes. These rates increase commensurate to the amount of other income you and your entity has earned, which is probably the same situation in your resident country: the more you have earned during the year, the more you will pay back at the end of the year.
Altogether, that is a lot of tax. There remains the predicament of how to overcome that problem and be left to happily engage in an investment activity like property that does have its attraction and good reputation of yielding the most secure results out of all investment activity. To make your efforts in this regard worthwhile, you need someone trustworthy to do the job required without the added cost, and most importantly someone who also can be relied upon to deliver expected results and pay up the profit.
Contact us to for a solution.
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