How does buying a Property in Australia ahead of arrrival help a new Migrant to Australia?
Its well documented that over 9o% of all new migrants to Australia decide to "look around" for a home or an investment when they "arrive."
For many people, this is about the worst strategy you can adopt.
But, for some people, this is a sound strategy.
Here are the people this applies to:
-Those with limted resources or funds.
-Lower income earners.
-Those with a low amount of deposit for their own home.
-Those with a property already in Australia.
-Those with a job already in place in Australia upon arrival.
-Those with an established credit rating in Australia.
-Those unsure where they will live/
For these people:
-Higher income earrners (in Australia that means those able to earn around AUD$120,000 plus per annum)
-Those with a large cash deposit available.
-Those going in over 2 years.
-Those without a guaranteed immediate job.
-THOSE WITHOUT ANY CREDIT RATING IN AUSTRALIA
(updated: April 2009: The financial crisis around the world has now meant it is even more important than ever to
choose the correct strategy, see below)
the strategy of "looking around " after arrival may not be a good thing to do.
Here's why:
a) Let's say you will be working after arrival in Australia, and your income will be around, say AUD$150,000.
b) You will migrate in 3 years time, and you currently have AUD$90,000 cash available.
c) Before you arrive in Oz you will sell your own home in your country of residence.
d) Your wife will stay at home to look after the kids when you arrive in Australia, so you will be the sole earner.
MIGRANT FAMILY 1: They take no action before migrating.
Here, approx is your situation after you arrive:
(e) Assuming you sell your own home in your current place of residence, point (c) above, you use this money to buy in Australia your own home, and be debt free.
(f) Your $90,000 point (b) above, you place in the bank at (say) 3.5% interest.
This is approx what your income position will look like after you arrive:
Salary : point (a) above AUD$150,000 ($2,885 per week)
Plus interest on deposit (f) $ 3,150
-------------
TOTAL INCOME $153,150
LESS TAX (approx) ($ 47,260)
--------------
Nett income $105,890-
or weekly $ 2,036
MIGRANT FAMILY 2: They buy a property for investment as soon as they apply for migration. They arrive in Australia after 4 years.
Assume a new apartment in Australia purchased for say $450,000, using your same $90,000 as deposit above,
without showing you complicated tax calculations, the botttom line is approx as follows:
YEAR ONE AFTER ARRIVAL IN AUSTRALIA:
Salary : point (a) above AUD$2,885 per week
Plus rents on investment property $ 500 per week
----------------
Total taxable income: $ 3,385
Less Tax deductions accumulated: ($ 1,111)
Less this years deductions: ($ 778)
New taxable income $ 1,495
Tax payable ($ 333)
Net income $ 2,548
Difference from option 1 + $ 512 per week
Ok, the above should be clear enough. By buying an investment property (before you arrive) you get an extra $512 a week after tax in your families pocket in your first year of arriving. That's like getting a 17% pay rise.
But wait.
That's not all!
Here is year 2 after you arrive:
Salary : point (a) above AUD$ 2,885 per week
Plus rents on investment property $ 500
----------------
Total taxable income: $ 3,385
Less Tax deductions ($ 780)
New taxable income $ 2,604
Tax ($ 773)
Net income $ 2,109
Difference from option 1 $ 72
The bottom line?
With just one property, this family gets an extra $512 a week cash flow in their hands the first year, and $ 72 a week thereafter, with a property that costs them nothing to hold.
These calculations also do no allow for any rent increases, which if are at say 5% per year for the 4 years, could generate around another $50- $60 a week income after tax, making a total of around $132.
(In addition, if there is some capital growth, even at just 5% a year also, this would also equate to an additonal gain of around $97,000 over the four years.)
By buying when you apply to migrate (and the longer the better) it is entirely possible increase your cash flow, and reduce your tax, as well as obtain the potential to achieve some capital gains.
But even without capital gains, we hope you can see the benefits. Higher tax payers, and those with more than one property could gain more.
FAQ:
Q: "I dont think I can afford to buy an investment property"
A: "You cant afford NOT to. If you wait till you arrive in Australia, you will be immediatley subject to the high tax rates on your personal salary. By taking action earlier, you could well be helping your family greatly.
Q: "I need to keep my money for when I arrive."
A: "Why? What are you going to do with it? Assuming this is your spare money, after providing for your family and their housing and schooling etc, you will only be looking for an investment after you arive to maximise your return anyway.
This is the whole point. It is more than likley you will not leave it in the Bank, where you can get only a small amount of interest, which is then taxed. Most likley you will by a property anyway, but by waiting you miss out on thousands of dollars in tax deductions in YOUR FAMILIES pocket. It simply makes economic sense. But as we mentioned earlier, not1 in a 1,000 migrants think it through beforehand."
Q: "Why should I buy as soon as I apply for migration, and not wait until I am approved? "
A: "There is a sound reason for this. Every year you buy BEFORE you migrate can greatly help your tax position on arrival. Waiting until you are approved, may mean you only have a year or two. It may be too short to get all the benefits."
Q: "What if I am not accepted for migration?"
A: "You still have the freehold investment property giving you rental income, and most probably not costing you anything.. Thousands of of people buy every year in Australia without any intention of migrating as a safe, secure investment. You can sell the property, or keep it as a long term investment for rental and capital growth."
Q: "I prefer older properties, not new build?"
A: "Until you get your migration, under the law you must buy a new property. Anyway, it is only the brand new or offplan properties that come with the full tax benefits"
Q: "Will buying a property help me to migrate?"
A: "NO! Buying a property for investment is no help whatsover with your migration application. It is a seperate issue."
Q: "What shall I do next if I am interested in getting more information?"
A: "The next step would be to speak to a property expert, who could recommend the type of property that would give you the maximum tax benefits, and who could provide you with a detailed cash flow and expenses calculation. Our links page on this website provides some of the best in this field"
