Investing from oversea's

[Ralph]

Appreciate any thoughts / experience people may be able to provide. I'm sorry for the length.

We're Australians living overseas, have a house in Perth and want to invest in one or two units in order to start building a property portfolio. We may be out of the country for a further 4 years.

We're earning insufficient income in Australia to pay tax, making negative gearing inefficient (I understand) until we return home and have a reasonable taxable income. My accountant advises that it is not possible to accrue cashflow loss as an individual - therefore we 'lose the loss' so to speak.

The upshot is (if it is correct that we can't somehow accrue the losses and claim later) that without the tax benefit, the units will be relatively more costly until we come home and can claim the losses (beginning only from when we return). Therefore, all things being equal, a less attractive investment to do from OS, better to wait until we return.

We understand that you can carry cashflow losses if you buy in the name of a Trust, however, the Trust cannot distribute a loss, and therefore the Trust income must become sufficient to offset the tax credits.

Anyone with experience in this situation / advice on the best way to go forward. We strongly believe that property investment is the right way forward, but wonder if we need to delay - unless we ofcourse found cashflow positive properties , but this is unlikely in the area I am looking.

Thanks for any help.

Regards.

 

[DrSassy]

Hi Ralph,

I was/am in the same situation that you have outlined. I was working in the US for 5 years and have recently just returned home. While I was overseas I was busy parking my funds in RE in Oz taking advantage of great exchange rates (well at least for a time there anyways...). As I had no income other than that coming in from my IP's I was making a loss but at the time I could easily carry this loss, plus when you have positive IP's and are a non-tax resident then you have no tax free thresh hold - you pay tax from $0 onwards. I was also using one of my properties as my 'house of abode' which is capital gains tax free plus you get to write all the interest off against tax.

However it has always been my plan to accumulate these losses and write them off against future income. Now that I'm back I'm busy putting this plan into affect. My accountant didn't have any quams about it so maybe he is just simply naive about the fact that maybe you do need to be a trust to write this loss off?!

I would seriously get a second opinion on writing these losses off as there are many many people who go overseas and rent thier own home out and claim all interest and outgoings on tax and pay no capital gains (upto 6 years at least anyway). Assumedly they are accumulating losses until they get back. My buddy lived in Germany for 3 years and did exactly this.

cheers,

DrSassy

 

[Rolf Latham]

Hi Ralph

I have clients that have borrowed against Oz property owned in their personal names that is negatively geared and carry the loss forward to be claimed against future Australian (or repatriated income if subject to taxation).

ta
rolf

 

[pjb89]

Hiya Ralph

We are also in the same situation as you, however, have already purchased property and are actually in the throes of going again as we speak.

Your comment regarding the cost of keeping the IP's due to the zero tax situation (I am in Qatar) is higher as you are unable to claim the legitimate things like depreciation & interest etc. I model this using the PIA software and put my income to zero to find the 'real' cost to me to hold the property as I can't offset the expenses. To give you an idea I put an offer in on a place that had potential to easily increase my return that required a loan of ~$260K that would initially return about 5.5% gross and my 'real' cost worked out to be approx $160/week (out of my pocket) whereas if I was in Oz working, my out of pocket expense was ~$30/week. It won't take too many properties to load up your ability to carry the holding costs when you are o/seas!!

I have bought my properties through a HDT and used one of resident brokers to set up the finance and to be honest am quite happy with buying from o/s sight unseen. I use my PM to inspect and take a stack of photos and provide a condition report & guidance, my solicitors fire into action with one email and a copy of the contract, my broker parts the sea of banking protocol etc.

PM me if you like I am more than happy to provide more info.


Pedro

 

[Ralph]

Thanks pj, DrSassy and Rolf, much appreciate the replies.

Thanks for the advice, I think I need to try for a second opinion, and if I need one, then change accountants (ours aren't terribly pro-active as it is).

It seems that Rolf and DrSassy have the same view/experience, you can carry the loss forward as an individual, and pj, you're doing the same, but through a HDT (I get the impression from your reply that advice you may have received may have said you can't carry as an individual, but I'm not sure, you may have simply been saying you were using the HDT due to other benefits?).

Our fin adviser advised we open up a Discrectionary Trust a few years back and we did so, only holding shares at this point, not sure the exact differences with a hybrid DT - particularly in this instance. I've ordered 'Trust Magic' so will read up when that arrives.

pedro, excuse my ignorance, what is PM'ing - would be interested in how you're sorting this remotely. I planned to head back to Perth for a two weekend period after doing my research, interested to hear this as an alternative.

Thanks again for everyones help - this forum is a great resource....

 

[pjb89]

Ralph

click on my name and select 'send a Private Message to pjb


Pedro

 

[alexlee]

Investing from Overseas

Hi, Ralph,
Yes, you can definitely carry forward tax losses indefinitely. The loss isn't indexed, though, so you lose out on inflation.

I've been working overseas (first London and now Tokyo) for about 4 years. I started buying property in 2000 and just kept going. I now have a load of depreciation, and I offset that with high yielding Australian shares (since my overseas income isn't taxable in Oz). I buy things like banks, property trusts, etc The dividends / distributions offset my depreciation so I still get the tax advantages, and I diversify my portfolio at the same time.
Alex

 

[ggumpshots]

For Aussies living o/seas
go to www.smats.net

The Australian EXpat - The Luckiest Person on earth

is a book you should read if you are confused with the information you are getting. It is a reasonable introduction but if you already know your stuff it is a bit light.

There are several errors in these replies but the last reply was spot on.

Your accountant needs to be quickly changed

 

[ggumpshots]

pjb89
Why cant you offset your expenses . There should be no problem, unless you mean all your expenses?
cheers

 

[pjb89]

Sorry gg maybe I didn't word my reply quite properly....my mind was thinking ahead of my two fingers typing..

I meant to write that I can't claim the expenses as they are occuring as you can in Oz (221D) as i am a non resident for tax purposes.

Ciao

Pedro

 

[ggumpshots]

sorry did a search but couldnt find that section
PJB89 wrote
I meant to write that I can't claim the expenses as they are occuring as you can in Oz (221D) as i am a non resident for tax purposes.



Claiming expenses is no different ,as far as I undestand things in relation to an investment property for a non resident. The only difference in my simple mind is the threshold doesnt exist.
Thus rent minus expenses either gives you a gain or a loss.
A loss is carried forward aginst Austalian future income. What am I missing?

 

[Ralph]

Thanks again, extremely useful.

I have passed some text from the smat website to my accountants and asked for their thoughts.........very interested in their reply!