As the Australian expat mortgage broker helping Australians across the globe secure property back home, we consistently see how tax considerations and lending policies intertwine to impact buying decisions. Understanding both lending criteria and tax implications is crucial for making an informed choice about timing your property purchase.

In this blog post, we’re going to explore some of the key considerations to help you frame the decision of whether you should buy the Australian property whilst living and working abroad, or wait until you’re back in the country to buy.

Understanding Your Borrowing Capacity and Tax Position

One of the most complex aspects of expat lending is how banks assess foreign income and account for tax implications. Different lenders take varying approaches to assessing foreign income. Some will consider your net income in your country of residence - particularly beneficial for expats in low-tax jurisdictions like Singapore, Hong Kong, or Dubai. Others will apply Australian tax rates to your gross income for serviceability calculations, which can significantly reduce your borrowing capacity. This distinction can mean a difference of hundreds of thousands in borrowing power.

As a non-resident for tax purposes, on any Australian-sourced income, such as rental income, you'll be taxed from the first dollar earned on your Australian property income, with rates starting at 30% and climbing to 45%. This tax treatment directly impacts your borrowing capacity in ways many expats don't initially realise.

Income Assessment and Banking Policies

Most Australian lenders apply a "haircut" to foreign income - typically 20-40%. However, the real impact on your borrowing capacity comes from how they assess your after-tax position. For example:

• An expat earning SGD 300,000 in Singapore might have their income assessed very differently by two banks:
  • Bank A might consider the net income after Singapore's lower tax rates
  • Bank B might apply Australian non-resident tax rates, substantially reducing the assessable income

This variation in policy can create opportunities if you know which lenders align best with your circumstances.

Capital Gains Considerations

A critical consideration often overlooked in the timing decision is Capital Gains Tax (CGT). As a non-resident, you don't qualify for the 50% CGT discount that Australian residents receive. However, if you purchase while overseas but sell after becoming a resident again, you may be eligible for a partial CGT discount, proportionate to your period of residency.

This is where having a great tax adviser in your corner can be a very powerful move to ensure that you’re minimising current and future tax exposures here. The discount is typically applied on a pro-rated basis, so it’s important to crunch your numbers and consider your overall plans.

Current Lending Environment

The lending landscape for expats is more nuanced than ever. While some lenders have tightened policies, others have created specialised expat products offering:

• Loans up to 80-85% of the property value
• Interest rates comparable to domestic loans
• Offset account facilities (particularly valuable for tax management)
• Flexibility in income assessment methods

Making an Informed Decision

From a finance and tax perspective, here's what to consider:

• Income Structure Planning: How your income is structured in your current country can significantly impact your borrowing capacity. Salary, bonuses, and allowances may all be treated differently by lenders.
• Tax Impact Analysis: Consider both immediate rental income tax implications and future CGT scenarios. The timing of your return to Australia could significantly impact your tax position. It’s also important to consider any tax implications in your country of residence, such as tax on the Australian rental income or capital gains.
• Future-Proofing Your Investment: Look at loans that offer features helping manage tax implications, such as:
  • Offset accounts to reduce assessable rental income
  • The ability to make extra repayments before returning to Australia
  • Flexibility to restructure once you return and become a resident for tax purposes

The Right Support Team

Success requires professionals who understand both expat lending and tax implications:

• A mortgage broker experienced with different lenders' tax assessment policies
• An accountant versed in both Australian and international tax law
• A property manager who can help maximise tax-deductible expenses
• A buyer's agent for on-the-ground support

The Bottom Line

While non-resident tax rates might seem daunting, they shouldn't be a deterrent to entering the market. With proper structuring and the right lender selection, these challenges can be effectively managed. The real risk often lies in waiting - not just because of potential market growth, but because the combination of price increases and tax implications can significantly impact your ability to enter the market later.

Our advice? Start planning early. Understand your tax position, explore different lender policies, and structure your approach accordingly. Even if you're not ready to buy immediately, knowing how different banks will assess your income and tax position puts you in a stronger position to act when the right opportunity arises.

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

Book an obligation-free, complimentary consultation here today.

Ally Home Loans Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.