adelaidegirl

I have been reading the previous thread which Badgers started - the one about the maximum amount that the banks will lend you based on your salary, and figured that some of you might want to think about buying investment property when you get here.

Unlike the UK the Aussie government allows you to claim your mortgage interest for investment property, plus depreciation and lots of other costs, as a tax deduction. Together with your rental income, these deductions can mean that the bulk of your investment loan repayments are covered and you only need a little of your own cash. adelaidegirl

PS: I have a book out on this subject, I won't post the details here but if you are interested send me a PM.

Alan Collett

Because of the capital gains tax discount of 50% on chargeable assets owned for more than 12 months and the availability of an income tax deduction on the net loss arising on income generating investments there is a quite significant distortion in the real estate sector.

The danger in providing a general tax deduction for the net rental loss is that people make decisions to invest in real estate based on the tax breaks rather than the commercial realities, which on a rational basis would indicate that too many people are heavily geared up.

If interest rates edge up by 2 to 3% there are going to be a significant number of people who may have a useful tax deduction, but who still have to pay the mortgage and who won't have the available cash each month.

I recall an article a few months ago which said that if the Government restricted the deduction for losses from income generating assets such that they could only be offset against profits from the same source of income (which is the case in the UK) the top rate of tax could come down from 47% to nearer 42%. Personally, I think that would be a healthier scenario for the Australian economy, but politically I can't see it happening because so many would be affected.

Best regards.

Herman

As Alan said, its not 'unlike the UK', its actually the same unless you make losses on the rent. In the UK you offset the mortgage interest against the rental income, which normally eliminates any tax liability. The difference in Australia is that rental yields have historically been very low and the government wanted to encourage property investment to boost the economy. Therefore they legislated that when the mortgage interest exceeds the rental income, you are able to offset the excess interest cost against the top slice of your employment income. So called 'negative gearing'.

Beware of Foreign Investment Board rules if you are still a non-permanent resident though - there are restrictions on investment properties. I seem to recall that as temporary resident you can not buy a second hand dwelling as an investment property and you can only buy a newly built investment apartment if the property developer has FIB permission and less than a certain percentage (25%??) of the apartments is already owned by foreigners. A way round this that I explored was that as a foreigner you are allowed to buy land and develop it, so you can get a new house built as an investment property.

bondipom

One has to wonder about donations to the liberal party. What other country gives a non export industry such wonderful tax incentives and subsidies such as the first home owners grant.

brummie bird

[ A way round this that I explored was that as a foreigner you are allowed to buy land and develop it, so you can get a new house built as an investment property. [/QUOTE]

This is what i have done, i visited Perth in May to see a bit of a housing boom, this scared me into action, as i thought property would get so expensive i would lose the benefits of moving to Oz.

We put a deposit down on a plot of land North Perth ($500) the title does not get issued until Jan 2004, i have until then to sell my house and buy land. I bought the land for $93000 it is already valued at $120000,and i havent even paid for it yet.

You just need to complete an easy form from the foreign Investment Bereau, and agree to build within 12 months of purchase.

I am now paying for the land against the equity in my home here, and i am covered no matter what happens in either market.

It seems the perfect solution.

Angie