property investment while working overseas

[Totaro]

I will soon be relocated to an overseas location and employer has told me the salary would be exempt income.
I'm contemplating of getting an investment property before leaving for the new post. It will add a bit of stress and there is a risk of making rush decisions, however I have certain fear of missing out - don't want to be sent away for a couple of years and come back and find can't afford any property...
I guess there are some difference in terms of strategy while you are not physically here. one might be there is no negative gearing available (still able to deduct against rent, but not personal income). another might be there is less scope for capital works to add value (reno, GF etc), as I understand if you are not on site, the project could go sideways (nobody else will manage your project as carefully as yourself!)

So what are your suggestions? what's a better strategy for someone working overseas for the mid-term (1 year min, likely to be 2 years or even more)? Buying a house for capital gain, or get a unit for better cash flow? Or try to find a house with gf already build?

Another thing I couldn't get my head around is with exchange rate. If AUD went down, would I be much worse off? Obviously the property price is denominated in AUD and would be lower, but I'm only paying deposit now, and subsequent mortgage payment would be lower as well?

 

[norwoodman]

Which country (or countries) are you likely to working in? Is your working income likely to change significantly when you go overseas?

I'm currently working overseas in NZ on a 6-month secondment contract subject to extension and am myself currently contemplating purchasing an Australian property investment in the new year (my income is not exempt though).

 

[Mindmaster]

As long as your overseas salary gives you decent serviceability, getting property while you are overseas is a no brainer. Just do it.

Negative gearing is irrelevant so focus purely on CG and/or positive cashflow. Which ever suits your strategy best.

If the currency of your salary tends to be unstable in relation to the Aussie$, minimizing the amount you pay each week would be advisable.

All my investing has been done while overseas and on an ordinary income. All you need is a good MB and a couple of good BA's.

 

[Jamie M]

All my investing has been done while overseas and on an ordinary income. All you need is a good MB and a couple of good BA's.

Spot on.

I wouldn't rush into it just for the sake of buying something before you leave - it could be a costly mistake.

If you're still earning aud and working for the same company abroad it shouldn't really change things too much in terms of getting finance. Even if it were foreign income and company it's still quite possible.

Agree with the good BA and MB point above - utilising the two means you've got someone sourcing and negotiating on the he property whilst the MB structures and arranges finance. They can liaise directly with each other too which makes your life a little easier.

Cheers

Jamie

 

[Blacky]

I will soon be relocated to an overseas location and employer has told me the salary would be exempt income.
I'm contemplating of getting an investment property before leaving for the new post. It will add a bit of stress and there is a risk of making rush decisions, however I have certain fear of missing out - don't want to be sent away for a couple of years and come back and find can't afford any property...
I guess there are some difference in terms of strategy while you are not physically here. one might be there is no negative gearing available (still able to deduct against rent, but not personal income). another might be there is less scope for capital works to add value (reno, GF etc), as I understand if you are not on site, the project could go sideways (nobody else will manage your project as carefully as yourself!)

So what are your suggestions? what's a better strategy for someone working overseas for the mid-term (1 year min, likely to be 2 years or even more)? Buying a house for capital gain, or get a unit for better cash flow? Or try to find a house with gf already build?

Another thing I couldn't get my head around is with exchange rate. If AUD went down, would I be much worse off? Obviously the property price is denominated in AUD and would be lower, but I'm only paying deposit now, and subsequent mortgage payment would be lower as well?

I find it interesting that your employer said your income would be exempt. Unless you work for the govt there is no such thing.
You may however, be able to become a non-resident for tax purposes however, there are steps you must follow to be classed as non-resident. It is not as simple as just leaving the country. I strongly advise you to speak to a foreign tax specialist sooner rather than later (pm me if you want a reccomendation).

You can still be a non-resident and claim negative gearing - however - just not in the year that you experiance the loss. The losses accumulate until you make a profit.
As far as adding value goes it is still possible, however, as you say you need someone who can check it for you.

If you are earning foreign income (US$) you want a lower exchange rate. It means you earn more in AUD.
Finance is still possible, depending on your circumstance. Which country you will be in etc. For the majority of banks they take your salary at todays exchange rate and multiply it by 80% (to protect against currency fluctuations). (eg if you calcualte your salary today at AUD$100k the banks will take that as $80k). Some banks are different so talk to a broker.

You will also need to consider how you will sign documents while you are away. Get a Enduring Power of Atorny drawn up with someone you trust (father, mother, brother etc). This helps but not all docs can be signed by an EPOA (ie mortgage docs). DHL is usually pretty reliable to most countries.
Also dont forget to get ID'd by a lawyer, accountant and settlement agent.

Its not impossible, but it is different. Once you have done it once you will be fine.
At this point I think your first step is to organise your tax possition to ensure that you are actually elligble to be a non-resident, and what steps you need to take.

Blacky

 

[hobo]

I believe most government income isn't exempt either, unless ADF or AFP, so I assume Totaro must be in one of those categories.

Agree that you shouldn't feel rushed to buy a property before you leave, necessarily. But do start looking now. A BA could be an option if you are not comfortable doing your research long-distance and buying potentially sight unseen. Then again, you could always come home for a combined holiday-and-scoping-trip once you felt you were close to making a decision (work schedule and restrictions allowing).

Re the AUD rate - will you be paid in AUD or in foreign currency?

Do you have a trusted person (eg parent) to whom you could grant a Power of Attorney? Then they could sign contracts/docs etc for you while you are away?

 

[knightm]

Good advice above, particularly Blacky's post. I believe he talks from OS experience too.

1 Get tax sorted (accountant with International experience)
2 Get finance options sorted (good Mortgage Broker)
3 Get someone on the ground who can locate the deals (trusted family/friends if they are investors, BA or similar) or else plan your holidays around trips back to locate property.
4 Buy IP#one
5 Repeat as often as funds allow

 

[Totaro]

As long as your overseas salary gives you decent serviceability, getting property while you are overseas is a no brainer. Just do it.

Negative gearing is irrelevant so focus purely on CG and/or positive cashflow. Which ever suits your strategy best.

If the currency of your salary tends to be unstable in relation to the Aussie$, minimizing the amount you pay each week would be advisable.

All my investing has been done while overseas and on an ordinary income. All you need is a good MB and a couple of good BA's.

Salary would be denomited in USD so should be fairly stable. I heard big banks generally multiply 0.8 for foreign salary as a buffer, but that should give me similar or just slight less loan capacity. Servicability will obviously depends on AUDUSD exchange rate.
MB=mortgage broker, BA=?

 

[Totaro]

I find it interesting that your employer said your income would be exempt. Unless you work for the govt there is no such thing.
You may however, be able to become a non-resident for tax purposes however, there are steps you must follow to be classed as non-resident. It is not as simple as just leaving the country. I strongly advise you to speak to a foreign tax specialist sooner rather than later (pm me if you want a reccomendation).

You can still be a non-resident and claim negative gearing - however - just not in the year that you experiance the loss. The losses accumulate until you make a profit.
As far as adding value goes it is still possible, however, as you say you need someone who can check it for you.

If you are earning foreign income (US$) you want a lower exchange rate. It means you earn more in AUD.
Finance is still possible, depending on your circumstance. Which country you will be in etc. For the majority of banks they take your salary at todays exchange rate and multiply it by 80% (to protect against currency fluctuations). (eg if you calcualte your salary today at AUD$100k the banks will take that as $80k). Some banks are different so talk to a broker.

You will also need to consider how you will sign documents while you are away. Get a Enduring Power of Atorny drawn up with someone you trust (father, mother, brother etc). This helps but not all docs can be signed by an EPOA (ie mortgage docs). DHL is usually pretty reliable to most countries.
Also dont forget to get ID'd by a lawyer, accountant and settlement agent.

Its not impossible, but it is different. Once you have done it once you will be fine.
At this point I think your first step is to organise your tax possition to ensure that you are actually elligble to be a non-resident, and what steps you need to take.

Blacky

thanks Blacky, that's very good advice.
Job will be located in Austria. Employer is kinda like an NGO and they have special agreement with both Australia and Austria tax authority and they have made it clear that salary will be exempt from local income tax. However since I'm already spend half of 14/15 FY in Australia I find I might be better off at least for this year to remain as tax resident (non resident pays higher bracket and no tax-free threshold). Whether it's better to be non-resident for the next FY I'm not too sure.
Very useful tip on getting power of EPOA. But what do you mean by get ID'd by a lawyer? Can a conveyancer do the same?
Thanks.

 

[hobo]

Ah, of course - UN. Congrats.

 

[Blacky]

thanks Blacky, that's very good advice.
Job will be located in Austria. Employer is kinda like an NGO and they have special agreement with both Australia and Austria tax authority and they have made it clear that salary will be exempt from local income tax. However since I'm already spend half of 14/15 FY in Australia I find I might be better off at least for this year to remain as tax resident (non resident pays higher bracket and no tax-free threshold). Whether it's better to be non-resident for the next FY I'm not too sure.
Very useful tip on getting power of EPOA. But what do you mean by get ID'd by a lawyer? Can a conveyancer do the same?
Thanks.

NGO in Austria - very cool. Congrats.

Im not an accountant so you will need to confirm. However, I believe that you can be a resident in Oz for the portion of the year that you are resident (taxed at normal rates) and non-resident for a portion of the year. However, this will require you to lodge your 'non-resident' status prior to your departure. Speak to your accountant for the best way to do this.

It might be an WA thing, however, we need to be identified prior to property transfer. This can be done by a solicitor, convayencor etc. I just got everyone to do it to be safe. You can do it at the Aus embasy if required. I dont have one close to me, hence my safe option.

I will also re-iterate the need for a foreign tax specialist. Foreign tax is a complex beast and getting it wrong can be expensive.

The AUD/USD is still at a pretty high level, so hopefully it will drop soon.
Also consider your banking. You might be able to open an overseas acct when you get to Austria. If not research the best banking in aus.
My international banking is done by Citibank. They kind of suck service wise, they have weird rules which they impliment inconsistantly, and their online platform is something from the 80's - but give the best exchange rates and lowest fees. The difference in exchange rates compared to CBA is about 3% so the couple of thousand extra/year makes it worth while. I believe online companies are even better (XE, Oanda etc) - I havent looked into it.

As someone above said. Im not an expert on any of this, I only know it as Im an expat. You will need to do your own research - but Im happy to help where I can.

Blacky

 

[Blacky]

BA=?

Buyers Agent

 

[geoffw]

Working out if you are a resident for tax purposes:
https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/

From that I'd be guessing Totaro will be regarded as a resident.

That's not too bad. With an investment property here losses can be offset against taxable income or carried forward if there's no income (but there will be income from rent). That offset may not be available if paying tax in other countries.

 

[nomadic]

If you're a non-resident consider buying shares because you don't have to pay any tax on the dividends.

 

[Blacky]

If you're a non-resident consider buying shares because you don't have to pay any tax on the dividends.

Ha ha. Not sure where you heard that but it is incorrect.

Any Australian dividends will be taxed in Australia at the 'non-resident rate with the added bonus that you don't receive any franking credits.
International shares will be slugged witholding tax, plus taxed in the country you are resident in.

All of this with the added complexity of paying an internationals tax professionals fees.

I wish dividends weren't taxed.

Blacky

 

[knightm]

I wish dividends weren't taxed.

Blacky

Im sure there are a few others that feel the same way.

But with OS income relatively tax free, and property owned here with leverage and depreciation wouldn't the tax be minimal for resi real estate? Or are there other stings due to OS component?

 

[knightm]

BA=?

Sorry Totaro search the forum for "Buyers Agents" there are heaps of posts and a few of them/us around these days. They are everywhere in the USA and a small but growing percentage of transactions in AUS have independent BA's involved. Can basically do most of the research, legwork and due diligence to make buying easier, quicker, safer etc. Good for time poor and buyers who want to fast track by accessing the extra experience.

 

[Blacky]

But with OS income relatively tax free, and property owned here with leverage and depreciation wouldn't the tax be minimal for resi real estate? Or are there other stings due to OS component?

Its true that as a non-resident you don't pay Australian tax on your overseas earnings. You do however, have to pay tax in the country you are resident, the country you earned the money (if different to your residency) or maybe both, depending on the rules of your country of residence.

In Australia you pay roughly 30% on all Australian earnings (I think it is actually 28.5% but I could be wrong - anyway is about 30%). You pay this on all of your Australian taxable income. There is no tax free threshold. Meaning its not until you are earning somewhere over $80k that you are break even (I think).
Add in a few other factors such as no CGT concession, no franking credits, foreign currency exchange risk, and additional cost of managing your tax affairs and some shine comes off investing in Australia as a non-resident.

Don't get me wrong, there are plenty of benefits of being a non-resident (so woe-is-not-me). But to say as an expat you are "tax free" isn't quite accurate either.

Blacky

 

[Totaro]

NGO in Austria - very cool. Congrats.

Im not an accountant so you will need to confirm. However, I believe that you can be a resident in Oz for the portion of the year that you are resident (taxed at normal rates) and non-resident for a portion of the year. However, this will require you to lodge your 'non-resident' status prior to your departure. Speak to your accountant for the best way to do this.

It might be an WA thing, however, we need to be identified prior to property transfer. This can be done by a solicitor, convayencor etc. I just got everyone to do it to be safe. You can do it at the Aus embasy if required. I dont have one close to me, hence my safe option.

I will also re-iterate the need for a foreign tax specialist. Foreign tax is a complex beast and getting it wrong can be expensive.

The AUD/USD is still at a pretty high level, so hopefully it will drop soon.
Also consider your banking. You might be able to open an overseas acct when you get to Austria. If not research the best banking in aus.
My international banking is done by Citibank. They kind of suck service wise, they have weird rules which they impliment inconsistantly, and their online platform is something from the 80's - but give the best exchange rates and lowest fees. The difference in exchange rates compared to CBA is about 3% so the couple of thousand extra/year makes it worth while. I believe online companies are even better (XE, Oanda etc) - I havent looked into it.

As someone above said. Im not an expert on any of this, I only know it as Im an expat. You will need to do your own research - but Im happy to help where I can.

Blacky

Again thanks Blacky

 

[nomadic]

Ha ha. Not sure where you heard that but it is incorrect.

Any Australian dividends will be taxed in Australia at the 'non-resident rate with the added bonus that you don't receive any franking credits.
International shares will be slugged witholding tax, plus taxed in the country you are resident in.

All of this with the added complexity of paying an internationals tax professionals fees.

I wish dividends weren't taxed.

Blacky

Ok that makes sense.. I guess they consider it income that's derived in Oz so you have to pay tax on it like rental income from an Aussie property. But any property held outside Oz, the rent doesn't have to be declared on your Oz tax return.

I know that any shares held before you become a non-resident, and sold (irrespective of status) have to be reported for the gain/loss. But any shares bought and sold during the period you're a non-resident doesn't have to be reported, so losses cannot be brought forward and gains aren't taxed.

I should edit my OP to say this:

If you're a non-resident consider buying and selling shares because you don't have to pay any tax on capital gains (you also can't carry any losses forward).