Investing in Australian property

The optimum structure will depend on how the tax laws of Australia interact with your jurisdiction and must be carefully considered.

If a foreign resident individual invests in Australian property directly, they will be subject to tax on rental income and capital gains. Australia generally has a primary taxing right of up to 45% on income and capital gains. A foreign tax credit may be available for tax paid in Australia. Losses from the property may be offset against the individual’s other income.

If purchased through an Australian company, the tax paid may be capped at 30% and there are no withholding taxes on fully franked dividends. However, the shareholder’s country of residence may not allow a tax credit for the tax paid by the company. You should therefore consider how such dividends may be taxed in your country. Any income or capital losses will be trapped in the company until the company is profitable.

Investing through an Australian trust can provide benefits over a company. If the trustee makes a beneficiary presently entitled, the trust should not be taxed. While a form of withholding tax may apply to distributions to non-residents, the beneficiary may be entitled to a foreign tax credit. Similar to companies, any income or capital losses must remain in the trust until these are offset against income or capital gains.

If investing in Australia, it is important to consider applicable state taxes. For example, foreign persons, companies, and trusts who buy Australian land may be subject to:

1. Transfer duty and land tax;
2. Surcharge purchaser duty of 8%; and
3. Surcharge land tax of 2% per year.

Due to the complexities involved, Australian tax advice should be obtained prior to investing to ensure that all risks and opportunities are considered.

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