Due to the in-depth nature of the tax system, it is important to consult an expert tax advisor when considering your particular purchase in Australia. Below is a brief guideline to Australia's property tax system which will help you to become familiar with the system.
It is advisable to obtain professional advice about taxation issues before entering into any property transaction. There are various ways that overseas or offshore property investors can legitimately save tax and our taxation experts can help you with planning the most beneficial ways in which to do so.
There are certain basic taxes applicable in purchasing Australian property, while more may also be applicable according to the State in which you buy:
Goods and services tax (GST) or VAT
GST is charged at a flat rate of 10% and is charged on the supply of goods and services, including real estate. It is essentially a value added tax as it is the consumer or end user who ultimately bears the tax.
Stamp duty is levied on a wide range of transactions, such as agreements for acquisitions of real estate, business and some marketable securities, as well as leases and financing transactions. It is a state tax and is charged either at a fixed rate or on an increasing scale depending upon the value of your property.
This is an annual state tax based on the ownership of land and, in some states, on the usage
of land. Land tax is levied on the total unimproved value
of the land at a specified date. The tax rates and thresholds vary from state to state and over time.
Capital Gains Tax (CGT)
CGT in Australia is payable upon realized capital gains and it is not treated separately in its own right, but forms part of the income tax system. However, for home owners this tax is not charged as the sale of personal residential property is normally exempt from capital gains tax. Gains realized during any period in which the property was not used for personal use (eg. rental) are, however taxable.
Recent reforms to the CGT system in December 2006 have been good news for foreign residents as the range of capital gains taxable assets for foreigners has been limited. This is an attempt by the Australian government to further enhance Australia’s appeal as an attractive business environment for overseas investors.
Tax on Rental Income
Generally, any income that you receive from renting out property will be liable for income tax, so you must include it in your tax return. This income could be from renting out land or buildings, or it could be income you earn by having private lodgers or flatmates living with you.
Australia property does not incur inheritance taxes, although some inherited assets may have Capital Gains Tax implications for the beneficiaries.
Council rates or property taxes typically fund the local governments in all States. Taxes are charged on residential, industrial and commercial properties. In addition, some States levy tax on land values.