Saudi-Based Australians: Tax on Australian Property
Imagine earning a tax-free salary in the vibrant Saudi Arabian economy, only to find your Australian property investments eroding your savings.
This is the reality for thousands of Australians working as expats in the Kingdom. While Saudi Arabia offers a low or zero-income tax environment, this freedom does not cancel your tax duties back home.
Australia’s tax rules on local property are strict for non-residents. Recent law changes have made the situation much more challenging. Your residency status, rental income, capital gains, and sale process are all heavily impacted.
This guide will explain how the intricate tax structure in Australia affects you. You will learn the exact steps to take to avoid costly mistakes, fines, and automatic tax withholding.
The Critical First Step: Determining Your Tax Residency Status
Your tax residency status is the most important factor in deciding your Australian tax liability. This status determines which income is taxed in Australia. Incorrectly determining your residency is the biggest risk for Australians living overseas.
For an Australian expat with a tax-free Saudi salary, foreign resident status is essential. If the ATO finds you are still a resident, your worldwide income could be taxed in Australia. This includes your Saudi salary, which could face marginal rates up to 45%. Rigorous proof of non-residency is therefore critical to protect your overseas income.
Why Residency is the Key Determinant of Your Tax Liability
Australian tax residents must generally pay tax on their worldwide income. They get access to the tax-free threshold (currently $18,200) and various tax offsets. Conversely, a foreign resident is only taxed on Australian-sourced income. Rental income from Australian property is an example.
The difference is crucial for a Saudi-based expat. If you are found to be an Australian resident, your Saudi salary becomes taxable in Australia. Since Saudi Arabia usually has no income tax on salaries, you cannot claim a foreign tax offset in Australia. Your entire Saudi salary could be subject to high Australian marginal tax rates.
The ATO’s Four Residency Tests: A Quick Guide for Expats
The ATO uses four legal tests to decide your tax residency. You become an Australian resident if you satisfy just one of these four criteria.
The Resides Test (Primary Test)
The resides test is the first and main way to determine residency. It examines your overall facts to see if you “reside” in Australia. Factors include how long you are physically present and your purpose for being there. Other factors are family ties, business links, and the location of your assets. An expat who maintains strong Australian links may be found to be residing there for tax purposes. These links include frequent visits or keeping a former main residence.
The Domicile Test
You are considered an Australian resident if your domicile—your permanent legal home—is in Australia. This is true unless the ATO accepts that your permanent home is outside Australia. Domicile is either by birth or by choice (moving with the intent to make it permanent).
The 183-Day Test
You are a resident if you are physically in Australia for more than half the income year (183 days). This time can be continuous or broken up. This test is automatically met unless your “usual place of abode” is outside Australia. You must also have no intention of settling in Australia. Frequent returns, even for holidays, can risk triggering this test.
The Superannuation Test
This test mainly applies to government employees. It applies if you are an eligible employee under the Superannuation Act 1976. Your dependants must also be residents.
The Saudi-Australia Tax Treaty Status: Implications for Expats
The lack of a formal tax agreement between Australia and Saudi Arabia increases tax risks for expats. Australia and Saudi Arabia do not have a Double Tax Agreement (DTA) in place as of 2024. DTAs are treaties that prevent double taxation and resolve conflicting residency claims.
The lack of a DTA means there are no formal ways to resolve residency disputes. If the ATO claims you are a resident, you must report your worldwide income, including your Saudi salary. Since Saudi Arabia does not typically tax salaries, you may not have a foreign tax offset to claim. This means your Saudi earnings could be fully taxed at Australian marginal rates. You must gather proactive evidence to prove non-residency. This includes proof of a new, permanent living situation in Saudi Arabia.
Tax on Rental Income for Non-Residents Australia: The High-Rate Reality
Once you are a foreign resident, the Australian tax structure in australia for rental income is much more aggressive. All rental income from Australian property is fully taxable in Australia. This applies no matter where you live.
Non-Resident Tax Rates vs. Resident Rates: What’s the Difference?
The main difference is the removal of the tax-free threshold and the compression of the lower tax brackets. A foreign resident pays income tax from the very first dollar of taxable Australian income. The non-resident rate starts at 32.5 cents for every dollar. This is a much higher effective tax rate than what a resident investor pays.
This punitive structure ensures the ATO collects maximum revenue from Australian-sourced income. This high initial tax rate severely limits your positive cash flow. Financial planning is essential for any Australian expat property tax assessment.
Current Australian Tax Rates for Residents:
| Taxable Income | Tax Rate | Tax Payable |
|---|---|---|
$0 – $18,200 | 0% | Nil |
$18,201 – $45,000 | 16% | 16¢ for each $1 over $18,200 |
$45,001 – $135,000 | 30% | $4,288 plus 30¢ for each $1 over $45,000 |
$135,001 – $190,000 | 37% | $31,288 plus 37¢ for each $1 over $135,000 |
$190,001+ | 45% | $51,638 plus 45¢ for each $1 over $190,000 |
Non-residents have simpler but higher tax rates. These rates start from the first dollar of Australian income.
Current Non-Resident Tax Rates:
| Taxable Income | Tax Rate |
|---|---|
$0 – $135,000 | 30% |
$135,001 – $190,000 | 37% for each $1 over $135,000 + $40,500 |
$190,001 and over | 45% for each $1 over $190,000 + $60,850 |
This example uses general information only. It does not take into account your personal circumstances. Speak to a mortgage or tax specialist to get tailored advice.
Allowable Deductions: Reducing Your Taxable Income
Foreign residents can claim deductions for expenses if the property is rented. You can claim these deductions just like Australian residents. Deductible expenses include loan interest and property management fees. Other deductible costs are council rates, insurance, and maintenance. Capital allowances (depreciation) are also included. Expenses that are capital or private cannot be claimed right away.
For joint properties, income and expenses are split based on legal ownership. For joint tenants, they are split equally. For tenants in common, they are split by the specific fraction owned.
Australian Expat Negative Gearing: Limited Benefits
Negative gearing happens when property expenses are more than the rental income. Australia’s tax system only taxes the net profit (income minus expenses). Therefore, excess rental expenses can usually be deducted against other income.
However, the benefit of Australian expat negative gearing is limited for Saudi-based expats. As a foreign resident, you can only deduct a rental loss against other Australian-sourced income. Since your main income (Saudi salary) is foreign-sourced, you have no other Australian income to offset the loss against. The loss must be carried forward to offset future rental profits or a capital gain. This lessens the immediate cash-flow benefit that resident investors enjoy.
Capital Gains Tax for Non-Resident Australians: Planning for Disposal
Capital Gains Tax (CGT) rules govern the taxation when you sell a property. Foreign residents are only taxed on “Taxable Australian Property” (TAP). TAP includes direct interests in Australian real estate.
The Main Residence Exemption for Expats: Did You Lose It?
One major change for Australian expats is the Main Residence Exemption (MRE). The MRE previously allowed owners to disregard any capital gain from selling their principal home.
The Strict Post-30 June 2020 Rules
Foreign residents cannot claim the MRE for property sold after 30 June 2020. This applies even if you were an Australian resident for part of the ownership. If you sell your former family home after this date, it is treated as a taxable asset. CGT applies to the gain since the original purchase date.
This rule creates a large retroactive tax liability. The tax bill on your accumulated gain could be substantial upon sale. Immediate financial modeling is essential if you still own a former main residence. A limited exception, the ‘life events test,’ may apply. You must meet this test at the time of disposal. You must have been a foreign resident for six years or less. A specific life event must have happened during that time.
Calculating CGT: The 50% Discount and When Apportionment Applies
The standard 50% CGT discount is generally not available to foreign residents. From 1 July 2027, new legislation replaces the 50% CGT discount with cost-base indexation; residents can still use the discount for gains accrued before that date, and foreign residents generally cannot access it. This discount halves the taxable capital gain for assets held over 12 months. This rule applies to assets acquired after 8 May 2012. This increases the tax on capital gains tax for non-resident Australians.
The ATO may allow an apportioned discount in certain cases. This applies if you were an Australian resident for part of the ownership period. A complex calculation determines the resident ownership percentage.
Foreign Resident Capital Gains Withholding (FRCGW): Navigating the Settlement Changes
The FRCGW scheme forces purchasers of Australian property to withhold part of the sale price. This is sent to the ATO if the seller is a foreign resident. Legislative changes mean this is becoming a required step for nearly every expat seller.
Critical Update: The FRCGW Rate Increase and $0 Threshold
Changes to the FRCGW scheme, starting in 2025, are a major shift in the Australian tax structure in australia.
- Rate Increase: The withholding rate rises from 12.5% to 15%.
- Threshold Removal: The minimum sale threshold of $750,000 is removed.
Effective 1 January 2025, every sale of Australian property by a foreign resident will face a 15% withholding rate. This is true regardless of the sale price. The buyer must withhold 15% of the gross sale price at settlement. They must send it to the ATO unless you provide a valid clearance certificate. This shifts the burden to the seller. You must act proactively to avoid a 15% reduction of your settlement funds.
| Contract Signed Date | Minimum Sale Threshold | Withholding Rate | Implication for Expats |
|---|---|---|---|
Up to 31 December 2024 | $750,000 | 12.5% | Lower-value properties may be exempt from withholding. |
On or after 1 January 2025 | $0 (All properties | 15% | A Clearance Certificate or Variation is needed for all sales. |
How to Avoid Withholding: The ATO Clearance Certificate
If you believe you are an Australian tax resident, you must get an ATO Clearance Certificate. This certificate confirms your tax residency to the buyer. It prevents the mandatory 15% deduction at settlement. You must provide the certificate to the buyer on or before settlement. Apply as soon as you consider selling, as processing can take up to 28 days. Each vendor on the title must lodge a separate application.
Reducing the Withholding Rate: Applying for a Variation
If you are a confirmed non-resident, you cannot get a Clearance Certificate. However, you can apply for a variation to lower the withholding rate. This is possible if your actual tax liability is much less than the 15% mandatory withholding. The variation application should be lodged once the sales contract is signed. Variations can also take up to 28 days to process.
State-Based Absentee Owner Surcharges: Unexpected Holding Costs
Beyond federal taxes, your Australian investment property from overseas is subject to state land taxes. These often include high surcharges on ‘foreign persons’ or absentee owners. These surcharges are separate from federal tax residency. They significantly increase the annual cost of holding Australian land.
Land Tax Surcharges in NSW, Victoria, and Queensland
Several Australian states impose surcharge land tax on foreign persons who own residential land. This includes New South Wales (NSW), Victoria (VIC), and Queensland (QLD). Recent years have brought large rate increases.
- NSW: The surcharge rate is set to increase to 5% of the unimproved land value from 2025.
- Victoria: The absentee owner surcharge rose to 4% from the 2024 land tax year.
This surcharge is applied to the unimproved land value. It is paid in addition to any general land tax. For high-value land, a 5% annual surcharge is a major, recurring expense. You must factor this into your investment viability.
Defining a ‘Foreign Person’ for State Land Tax
The definition of a ‘foreign person’ differs slightly between states. It generally targets non-resident foreign citizens. For expats, it often depends on whether you are ordinarily resident in Australia. This includes your physical presence and intentions. Since this definition often captures Saudi-based Australians, the state surcharge is an unavoidable ongoing cost.
As a Saudi-based Aussie expat, your foreign income can be “shaded” by lenders and non-resident tax rules can catch you out.
- This can derail your loan approval or leave you with surprise tax bills.
- Work with an expat lending specialist who understands Saudi income and Aussie tax rules to secure the right mortgage and structure your purchase smartly.
- Speak with an Aussie expat mortgage expert today.
Strategic Structuring: Optimal Ownership Structure for Australian Investment Property from Overseas
The choice of ownership structure strongly affects the entire Australian tax structure in australia for rental income and capital gains. Your optimal choice depends on your long-term goals. You must consider if income or capital growth is your primary aim.
Individual Ownership
Individual ownership is the simplest structure. Positive rental profit is taxed at high non-resident marginal rates, starting at 32.5%. If the property is negatively geared, the loss can only offset other Australian income. Crucially, individual owners generally lose the 50% CGT discount upon sale.
Company Ownership
A company structure taxes rental income at a flat corporate rate (25% to 30%). This flat rate may be lower than the individual non-resident rate for high profits. However, negative gearing losses are stuck within the company structure. Companies are explicitly not entitled to the 50% CGT discount. This makes it a poor choice for assets bought for long-term capital appreciation.
Using a Trust Structure
Trusts, especially discretionary trusts, offer flexibility in distributing income. The 50% CGT discount can be saved if the capital gain goes to a resident beneficiary. However, trusts are very complex for non-residents. If rental profits go to a non-resident, the trustee must often pay tax at high marginal rates (up to 45%). Negative gearing losses are also stuck within the trust.
| Feature | Individual Owner (Non-Resident) | Australian Discretionary Trust | Company |
|---|---|---|---|
Tax Rate on Rental Profit | 32.5% – 45% (High marginal rates) | Trustee rate up to 45% on non-resident distributions. | Flat company tax rate (25%-30%). |
Negative Gearing Loss | Used against other Australian income or carried forward. | Losses trapped/stay in the trust. | Losses trapped/stay in the company. |
CGT Discount (50%) | Generally unavailable. | Available if gain goes to a resident individual beneficiary. | Not available. |
State Absentee Surcharge | Applicable. | Applicable (including specific trust rules). | Applicable. |
Conclusions and Actionable Checklist
The Australian tax structure in australia poses high-stakes challenges for Australians in Saudi Arabia who own property. The lack of a DTA increases the difficulty of proving residency. New rules have made taxing capital gains and property disposal much tougher.
You face three main financial risks:
- High-Rate Income Shock: Rental profits are heavily taxed from the very first dollar. The rate starts at 32.5%.
- MRE Liability: The loss of the Main Residence Exemption for sales after June 2020 imposes a large CGT bill. This taxes all gains since the original purchase.
- Mandatory Withholding: From 2025, the removal of the FRCGW threshold forces action for every property sale. This is needed to prevent a 15% deduction of the gross sale price.
Actionable Checklist: Steps to Take Now
- Confirm and Document Foreign Residency Status: Review your ties against the ATO tests to prove your non-residency. Gather evidence like foreign tenancy agreements and bank records. This shields your Saudi income from Australian tax.
- Model CGT Liability on Former Home: If you still own a former main residence, model the potential CGT bill right away. Use the post-2020 MRE rules in your calculations. This must guide your decision on when to sell the property.
- Pre-Plan for FRCGW: If selling is planned, apply for the ATO Clearance Certificate immediately upon listing. Factor in up to 28 days for processing the certificate. This avoids the 15% withholding after 1 January 2025.
- Review Holding Costs: Calculate the ongoing state land tax and absentee owner surcharges. Use the unimproved land value for this calculation. Ensure these annual costs do not undermine your investment’s viability.
- Audit Ownership Structure: Review your current structure (Individual, Trust, Company) against your long-term goals. Make sure the structure is as tax-efficient as possible for a non-resident.
Proactive advice from a specialist tax professional is essential. Diligent planning minimises risks and helps you maximise your property investment benefits.
As a Saudi-based Aussie expat, Australian tax rules are complex and unforgiving.
- Miss a rule and you could lose 15% of sale proceeds or have your Saudi salary taxed. Waiting only raises risk.
- Get expert guidance to confirm residency status and build a tax-optimised, lender-ready plan to protect your investment.
- Contact our expat specialist today
Key Takeaways
- Incorrect residency status risks taxing your entire Saudi salary at up to 45%.
- The lack of a DTA means no relief from double taxation if you are found to be a resident.
- Non-residents lose the tax-free threshold and start paying tax at a high 32.5% rate.
- You generally lose the Main Residence Exemption and the 50% CGT discount on sale.
- From 2025, you must get a Clearance Certificate for every sale to avoid 15% withholding.
- State surcharges (e.g., NSW 5%) increase your annual holding costs significantly.
- Carefully choose your ownership structure to maximise tax benefits for income or capital gains.
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