How Does Australian Tax Impact an Expat Mortgage?

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As it’s not easy to keep track of Australian taxes and how they impact an expat mortgage, non Australian residents may be wondering how income taxes and income tax rates are worked out in terms of Australian property and how that affects an expat mortgage.

If you’re applying for a home loan, considering Australian tax is important. Find out all about it in this article.

How Does Australian Tax Impact an Expat Mortgage

Why is considering tax implications for Australian property important as an expat?

Considering tax implications and how they impact an expat mortgage is vital for property investment because the non-resident tax rates can be quite steep. Let’s look at a quick example of the non-resident tax rates.

  • As a non-resident, you must pay 32.5% on the initial $120,000 income you make
  • You must pay 37% tax for any remaining income
  • You earn $125,000 from your investment property in Australia
  • You pay taxes in the amount of 32% on the $120,000
  • You pay taxes in the amount of 37% in the remaining $5,000
  • You pay tax of $40,850

What’s more, Australian tax rates can impact the amount you can borrow from a lender, depending on your circumstances and country of residence. Keep reading for more on this.

And the other reason that being aware of the Australian tax implications is essential is if you make tax losses on investment, you can carry these over to offset capital gains tax when you sell the property. Getting the right tax advice and professional advice and consulting the right resources is essential when making calculations on taxable income and understanding tax rules.

Will lenders use the Australian tax rate or the rate of the country in which I reside?

The majority of lenders will make use of Australian tax rates. In cases like these, this means even non residents of Australia must file their Australian income tax return to the Australian taxation office and meet tax obligations in line with Australian taxation. In this sense, you might find that your borrowing power is potentially limited.

In other situations, lenders will use tax rates that pertain to your country of residence.

How Does Australian Tax Impact an Expat Mortgage

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What are the exact tax rates for non residents of Australia?

The tax that non residents of Australia must pay falls into three main categories for tax purposes. The table below contains the different tax bands for non residents of Australia:

Income (taxable AUD)

      Payable tax (AUD)

0 — $120,000 

      32.5%

$120,001 — $180,000

      $39,000 (and 37% of additional income over $120,000)

Over $180,000 

      $61,200 (and 45% of additional income over $180,000)

How does Australian tax impact an expat mortgage in terms of what lenders offer you?

If you reside in a country that has particularly low tax rates, this can limit your borrowing capacity when a lender uses an Australian tax rate to evaluate your income. This is another critical answer to the question “how does Australian tax impact an expat mortgage?”

How does Australian tax impact an expat mortgage for residents in Singapore, the UAE or Hong Kong?

Since Hong Kong and Singapore have incredibly low tax rates, and the UAE doesn’t have any tax rates, if you’re a resident in these countries and your Australian lender uses Australian tax, this can impact your borrowing power.

Can I qualify for an expat mortgage if I have tax debt?

Many lenders will assess several financial factors when evaluating your expat mortgage and your mortgage repayments, and tax debt might affect your application. If you have a history of making timely repayments for your tax debt, you may still qualify for an expat home loan or mortgage on investment property in Australia.

How Does Australian Tax Impact an Expat Mortgage

How does Australian tax impact an expat mortgage and investment property payments?

An investment property will be impacted by Australian income tax as you must pay income tax on Australian source income, which applies even to Australian expatriates who are non Australian residents. 

Now, if you’re an Australian resident (not an expat), your marginal tax rate is used, and you pay tax at this rate on any investment income made. But if you’re a non Australian resident, you pay tax at the rate of 32.5% on your first $120,000.

Another implication of Australian tax on investment property is that at the end of the tax year, even Australian citizens living abroad must go through a tax filing process and declare rental income made on a taxable Australian property on a tax return.

What should I include on my Australian income tax return?

When you complete your income tax return and submit it to the Australian taxation office, you must declare foreign employment income, i.e. your worldwide income and the exempt income that you make.

Which other taxes and factors should I be aware of as a non resident for tax purposes?

Two other factors to be aware of as non residents are the division tax and the Medicare surcharge levy.

What is the Division tax, and do expats pay the Division tax in Australia?

Both taxpayers who are non-resident and resident and who have superannuation contributions and taxable income in Australia exceeding $250,000 may have to pay the Division tax. The division tax is an extra tax related to superannuation contributions that exceed a certain threshold when the income that is added to a superannuation fund contribution exceeds the Division threshold. 

The Division tax is 15%.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Do I have to pay the Medicare levy surcharge as a non resident?

Resident taxpayers and temporary residents of Australia must pay the Medicare levy surcharge (2% of the taxable income and fringe benefits). Still, as a non resident, you will not be liable for the Medicare levy surcharge.

How does Australian tax impact an expat mortgage: Takeaway points

When it comes to the question how does Australian tax impact an expat mortgage, here are the takeaway points.

  • Your borrowing power for an expat mortgage can be impacted by Australian tax depending on your country of residence
  • Some lenders will use the Australian tax rate, some will use the tax rate of your country of residence to establish an expat mortgage
  • Australian tax debt can impact your eligibility for an expat mortgage, but it can depend on other factors

We have the facts you need for all things expat mortgages, home loans, and mortgage rates. Have a look at our other services, contact Odin Mortgage, get answers to more FAQs for more details!

How Does Australian Tax Impact an Expat Mortgage

How Does Australian Tax Impact An Expat Mortgage FAQs

What are the implications of capital gains tax and expat mortgages as a temporary resident abroad?

Temporary residents or expats who live outside of Australia and decide to rent out a property to help pay a mortgage can still treat the property as a principal (home) residence until the six-year mark for capital gains tax purposes.

Is it possible to reduce Australian tax on foreign earned income to facilitate paying an expat mortgage?

By using a foreign income tax offset, you can potentially reduce Australian tax on your foreign earned income. If you must pay tax in your country of residence outside of Australia, the foreign income tax offset can help you get relief in foreign taxes.

Does Australia have double taxation arrangements and what are the impacts of this?

Australia does have double taxation arrangements set up with many locations abroad in which Australian expats settle. The impacts of this are that you are unlikely to pay twice in terms tax for the income you make. Seek professional advice to make sure you don’t encounter a tax liability on the same income either country.

How much tax do I pay as an expat?

In terms of Australian dollars, non residents will pay between 32.5 cents for every $1, and 45 cents for every $1, depending on the income they make. If you earn 0 — $120,000, non residents will pay 32.5 cents for every $1. If you earn $120,001–$180,000, you pay 37 cents for every $1. If you earn over $180,000, you pay 45 cents for every $1.

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