Those Dreaded Taxes

[Ric&Martha]

Ok ...being American you can guess I'm wondering about taxes. I've been to the ATO site and read as much as I can; but still want someone to give me a 'yes' or 'no' answer. In the States we enjoy something called an itemized deduction on income tax that allows for deducting the interest paid annually on a family home mortgage. I'm not seeing that in AUS--which will result in a huge tax liability when we buy a home in Melbourne. So am I correct in interpretting AUS tax law as NOT allowing a deduction for interest paid annually on the family home mortgage? (and let's assume its just a home--no work being performed in the home in a home office).

Thanks for everyone's help!

Ric

[kaz101]

Hi Ric,

I'm not an accountant but as far as I know you can only have deductions on mortgage interest on investment properties and not on your own home. That's not a deduction I've heard of before since we didn't have that in the UK either.

Have you checked any Aussie accountant websites since they may have more info on what is deductible too? Especially since the tax year is about to end here on June 30th.

Regards,
Karen

[Bevdeforges]

I suspect what Karen told you is the truth. We Amis take the mortgage deduction as a "god-given" right but I am finding that the US is kind of unique in "encouraging" home ownership to this extent.

Hm, could be that's how the US housing market got itself and the rest of the world into so much trouble.
Cheers,
Bev

[Ric&Martha]

I agree with our perspective that it's a God-given right ...or at least that the US encourages home ownership, being pro-private property and all. But that too is changing for us Amis (is that what we're called down-under?). But let's not over simplify the mortgage banking problems or blame families who legitimately are seeking to buy a family home. Most of those problems come from greedy bankers and developers who NEVER intended to live in the homes or condos--just flip'em for a profit. Shame on the banks for giving out those loans!

Ric

[Bevdeforges]

Not blaming anyone here - but the full mortgage deduction is a real rarity outside the US, and people seem to be able to buy homes just fine. What you do have in some places are savings plans to help young people save up the down payment for a house. Don't know what (if anything) Australia has in that line - but you may want to consider renting for a bit before taking the plunge to buy a house.
Cheers,
Bev

[Ric&Martha]

All good points Bev, and we don't disagree. We've been spoiled by pro-home ownership tax laws in the US for nearly 60 years; and that's a hard habit to break and easy to see it becoming a middle-class entitlement. Even so, I fully agree that buying a house can be done without the tax deductions. Interesting enough, I see that negative-gearing rental property is the big tax loop-hole in Oz. Guess I'll just have to buy a family home and a rental to break even

Best regards,
Ric

[kaz101]

Hi Ric,

We get loads more deductions on rental investment property here in Oz than we did in the UK (can't compare with the USA).

You get a first home owners grant of $7000 to help you get started if you are a permanent resident (even if you've got rental property but not owned your own home) as long as you stay in your first home for at least 6 months. See the link in the "PLEASE READ...." sticky post for more info.

I've never heard Americans called Amis so I'm not sure where Bev got that from.

Yes negative gearing is popular here but it depends on whether you are a 'serious' investor or not. You can only buy so many properties when you are paying out for them every month - something I have tried to explain to real estate agents and developers alike. Some properties can be cash flow positive and turned negative when the accounts are drawn up. We had investment properties before we came to Australia and now we have large amount of tax credits so it will be interesting to see how much tax we pay (if any) when we do this years tax returns.

Regards,
Karen

[Ric&Martha]

Thanks Karen,

That paints an interesting picture from my perspective. It sounds as if its a reasonable thing to rent a home and purchase a rental thereby taking advantage a negative gearing (if you setup the rental in that way). Is that the case?

In terms of the first home purchase grant, this would be a first home purchased IN AUSTRALIA, correct? And to that end, I and my family are coming over on a 457 visa--how long will I need to be in country before trying to convert that to a permanent visa?

Thanks again for all your answers--this site is fantastic!

Ric

[kaz101]

Originally Posted by Ric&Martha

Thanks Karen,

That paints an interesting picture from my perspective. It sounds as if its a reasonable thing to rent a home and purchase a rental thereby taking advantage a negative gearing (if you setup the rental in that way). Is that the case?

You can check that with an accountant but it seems reasonable. You can only buy property with FIRB (Foreign investment review board) approval until you are a permanent resident. When we were in the UK it meant that we could really only buy apartments since a lot of them came with FIRB approval from big developers.

Originally Posted by Ric&Martha

In terms of the first home purchase grant, this would be a first home purchased IN AUSTRALIA, correct?

Correct. We had 2 investment properties here that we had not lived in at any time, and we got the first home owners grant when we bought our first home in Oz. The grant is only available the first time you buy a home in Oz and it goes directly to your bank account if that's what you request.

Originally Posted by Ric&Martha

And to that end, I and my family are coming over on a 457 visa--how long will I need to be in country before trying to convert that to a permanent visa?

That I don't know since we came in on a skilled independent visa (permanent). It may say on the immigration website (see the "PLEASE READ" post).

A good property investment magazine for Australia is Australia Property Investor. We subscribed to it from the UK and it kept us up to date with what's going on and also the Australian Tax Office (ATO) regularly write articles in there to help investors with their taxes.

Regards,
Karen