Archives: Investax FAQs

If you are a New Zealand citizen living in Australia on a Subclass 444 Special Category Visa, you are generally classed as a “temporary resident” for tax purposes — even though you may also be considered an Australian resident for tax purposes.

Under the ATO’s temporary resident rules, you only pay tax in Australia on your Australian-sourced income, such as:

• Salary or wages earned in Australia
• Rental income from Australian property
• Dividends from Australian shares

You do not pay tax on most foreign-sourced income or capital gains (for example, from overseas property or foreign shares), provided you:

• Hold a Subclass 444 visa, and
• Do not have an Australian citizen or permanent resident spouse/de-facto partner.

 

When could you lose your temporary resident status for tax purposes?

The ATO may revoke your temporary resident classification if you are in a spousal or de-facto relationship with an Australian resident or citizen.

A spouse/de-facto is defined as a person of any gender who:

• Is in a legally recognised marriage, or
• Lives with you on a genuine domestic basis as a couple.

This means if you move in with your partner and they are an Australian resident; you may become liable for tax on worldwide income.

 

What about overseas investments such as shares or property?

• Personally owned overseas assets: If you own overseas investments — such as foreign shares or overseas investment properties — in your own name and remain a temporary resident (Subclass 444 with no Australian spouse), capital gains from selling these assets are generally not taxable in Australia.

 

• Assets sold by an Australian resident trust: If an Australian resident trust sells overseas shares or an overseas property and the gain is foreign-sourced, it is generally non-assessable, non-exempt income for a temporary resident beneficiary under s 768-910 ITAA 1997. Certain exceptions may still apply, such as where the gain relates to Australian employment income or where anti-avoidance provisions are triggered.

 

If you have purchased a property within your Self-Managed Super Fund (SMSF) using a Limited Recourse Borrowing Arrangement (LRBA), you might be wondering whether you can carry out major renovations to enhance the property. The rules around this are strict and set out by the Australian Taxation Office (ATO) in SMSFR 2012/1 and getting them wrong can put your SMSF in breach of superannuation law.

What You Can Do with Borrowings

Under LRBA, borrowed funds can only be used for:

• Repairs – fixing damage or defects to restore the property to its original state (e.g., replacing a roof damaged by a storm, repairing fire damage to a kitchen).
• Maintenance – work that prevents deterioration and keeps the property functional (e.g., painting walls, replacing worn fences, renewing an outdated kitchen with modern equivalents).

These works are allowed because they don’t fundamentally change the character of the property.

What You Cannot Do with Borrowings

Major renovations that significantly improve or alter the property cannot be funded with LRBA borrowings. Examples include:

• Adding a second storey, new rooms, or additional bathrooms.
• Constructing a granny flat, swimming pool, or pergola.
• Converting a residential property into a commercial property or multiple strata-titled units.

Such works are classified as improvements, and LRBA rules prohibit borrowed funds from being used for improvements. Doing so could cause your SMSF to breach section 67A of the SIS Act.

How Major Renovations Can Be Done

While you can’t use borrowings for major renovations, you may proceed if:

• You fund the renovations using SMSF’s own cash resources (contributions or accumulated earnings).
• The renovations don’t transform the property into a different asset type (e.g., it must remain residential if originally purchased as residential).
• It doesn’t result in a different asset being held (for example, converting a house into a block of units would breach LRBA rules).

Inheriting a property overseas does not automatically trigger a tax liability in Australia. Generally, there is no tax payable at the time of inheritance. However, if you later sell the inherited property, you may be subject to Capital Gains Tax (CGT) in Australia—regardless of where the property is located—because Australian tax residents are taxed on their worldwide income and capital gains.

The capital gain is typically calculated based on the market value of the property at the date of inheritance. If you sell the property for more than this value, the gain must be reported in your Australian tax return.

If you hold the inherited property for more than 12 months before selling it, you may be eligible for the 50% CGT discount, which can significantly reduce your taxable capital gain. This discount is available to Australian tax residents for assets held longer than one year, including foreign real estate.

It’s important to note that while some countries impose inheritance or estate taxes, these are generally not creditable against your Australian CGT liability unless they are directly related to capital gains. Each situation can vary depending on the local laws of the country where the property is located and whether any double taxation agreements apply.

Due to the complexity of international estate and tax laws, it’s strongly recommended that you seek professional advice to ensure you’re meeting your obligations and making the most of any tax concessions available.

 

No, the 6-year Capital Gains Tax (CGT) exemption does not apply if you only rent out part of your home—such as a single bedroom—while continuing to live there. In this case, the property remains your main residence, but CGT is calculated on an apportioned basis. For example, if you rent out one-fifth of your property for two years, you may be liable for CGT on one-fifth of the capital gain related to that two-year period when the property is eventually sold.

To qualify for the full 6-year CGT exemption, you must move out and rent out the entire property while treating it as your main residence for tax purposes.

Land Tax:
Generally, no land tax is payable if you’re only renting out part of your principal place of residence (PPOR). The property is still considered your home. However, if you rent out the entire property, it may lose its exemption status and become subject to land tax, depending on the state or territory regulations.

Income Tax Reporting:
Any rental income received—whether from one room or the whole property—must be declared in your tax return. You can also claim a proportion of the related expenses, such as mortgage interest, council rates, insurance, and utilities, based on the area rented out and the period of rental.

Yes, you can rent your investment property to your parents or siblings and still claim negative gearing—but there are strict rules you need to follow, and the arrangement must pass the “arms-length” test.

In simple terms, the Australian Taxation Office (ATO) wants to ensure the rental arrangement is genuine and commercial. That means:

You must charge market rent. If you rent your property to your parents or family members at below-market rent—even as a favour—you won’t be able to claim the full tax deductions. The ATO requires you to apportion your expenses based on the rent you actually receive.

For example, if the market rent for your property is $500 per week, but you’re only charging your parents $400, you’re effectively charging 80% of the market rate. In that case, you can only claim 80% of your allowable expenses, including interest, rates, and maintenance costs.

There should be a formal lease agreement. Just like you would with any other tenant, put the agreement in writing. It should outline the rent amount, bond, payment frequency, and responsibilities.

The property must genuinely be available for rent. That means your family members are not living there rent-free or using it like a holiday home. The ATO wants to see that you’re actively trying to make a return on the property.

Expenses must be substantiated. Keep solid records of rent received, expenses paid, and communication around the tenancy. If the ATO reviews your return, they’ll want evidence the arrangement isn’t just helping out family under the guise of an investment.

Also, be mindful of perception—renting your investment property to parents or close family might invite closer scrutiny from the ATO. They want to ensure the deductions you’re claiming are for legitimate investment purposes, not personal arrangements.

 

Yes, if you rented out your home before moving in and making it your main residence, you may need to pay Capital Gains Tax (CGT) on part of the profit when you sell the property.

You won’t be eligible for the full CGT exemption because you didn’t move into the property immediately after settlement, meaning it wasn’t your main residence for the entire ownership period. Instead, you’ll receive a partial exemption, and the capital gain will be reduced based on how long the home was used to earn income (e.g. rented out) before you lived in it.

💡 How is the taxable capital gain calculated?

To work out how much of your gain is taxable, the ATO uses this formula:

Taxable Capital Gain = Total Capital Gain × (Non-Main Residence Days ÷ Total Ownership Days)

Note – This formula does not apply if you moved into the property immediately after settlement and later rented it out for up to six years, as the six-year rule may allow you to claim a full CGT exemption.

✅ Example:

Sarah bought a property on 20 October 2003 and rented it out for the first 3 years. On 21 October 2006, she moved in and lived there as her main residence until she sold it on 9 September 2022.

When Sarah sold the property, she made a total capital gain of $300,000.

To calculate how much of that gain is taxable:

• Non-main residence period = 1,098 days
• Total ownership period = 6,900 days

Taxable Gain = $300,000 × (1,098 ÷ 6,900) = $47,739

Sarah will need to pay CGT on $47,739, not the full $300,000. She may then be able to apply the 50% CGT discount (if eligible) to reduce this taxable amount further.

 

It’s quite common for investors to use an equity loan to fund the deposit and stamp duty when purchasing an investment property. Often, the property isn’t rented out immediately prompting one of the most frequently asked questions: Can I still claim the interest on my equity loan as a tax deduction?

The short answer is: Yes—provided the borrowed funds were used to acquire the property, and the property was genuinely available for rent after settlement.

Here’s how it breaks down:

• Before Settlement (e.g. for deposit and stamp duty): If the equity loan was used to cover the deposit, stamp duty, legal fees, or other upfront acquisition costs, the interest on those funds is generally deductible. That’s because the purpose of the borrowing was to acquire an income-producing asset—even if the rental income hadn’t started yet.
• After Settlement but Before Tenancy: As long as the property was genuinely available for rent (e.g. advertised at market rent with no unreasonable restrictions), the interest continues to be deductible—even if a tenant hadn’t moved in yet.

📝 Important:  Keep accurate records of when funds were used, what they were used for, and when the property was first made available for lease to support your claim.

You can usually access your super or SMSF tax-free when:

1. You turn 65 – No need to retire. You can access your super or Self-Managed Super Fund as a lump sum or income stream, tax-free.
2. You’re 60 or over and leave a job – You can withdraw all the super you’ve built up in your Self-Managed Superfund (SMSF) to that point tax-free, even if you keep working elsewhere. This is because ceasing an employment arrangement after turning 60 satisfies a “condition of release”, allowing you to withdraw your SMSF benefits without tax implications.Example – Sonya is 61 years old and has been working at Company A for several years. She decides to resign from her position at Company A but plans to start a new job at Company B shortly after. Upon resigning from Company A, Sonya meets a condition of release due to ceasing employment after age 60. This allows her to access the Self-Managed Super Fund benefits she accumulated up to the point of leaving Company A tax-free.However, any SMSF contributions made during her employment at Company B will be preserved and can only be accessed when she meets another condition of release, such as retiring or turning 65.
3. You retire after reaching your preservation age (between 55 and 60, depending on your birth year) – You can access your Self-Managed Super Fund, but some of it may be taxed if you’re under 60. The tax-free portion of your member balance won’t be taxed, but the taxable portion may be, depending on how much you withdraw and whether you take it as a lump sum or income stream.
4. You’re diagnosed with a terminal illness – If two doctors certify you’re likely to pass away within 24 months, your super or member balance in your SMSF can be accessed tax-free.

Yes, you can rent your investment property to your children or other family members and still claim negative gearing—but there are strict conditions you need to meet. The rental arrangement must pass the ATO’s “arms-length” test.

In simple terms, the Australian Taxation Office (ATO) wants to make sure the rental setup is genuine and commercial—not just a personal arrangement disguised as an investment. That means:

You must charge market rent. If you rent the property to your kids or family members at below-market rent—even with good intentions—you won’t be able to claim the full tax deductions. The ATO will require you to proportion your expenses based on the rent you actually receive.

For example: Let’s say the market rent for your property is $600 per week, but you’re only charging your adult child $420 per week. That’s 70% of the market rent. In this case, you’ll only be able to claim 70% of your allowable expenses—such as loan interest, council rates, and maintenance costs.

There should be a formal lease agreement. Just like any standard tenancy, put everything in writing. Include the rent amount, payment schedule, bond details, and tenant obligations.

The property must genuinely be available for rent. Your child or relative can’t live there rent-free or treat it like a holiday home. The ATO expects to see a genuine attempt to generate income.

Keep proper records. You’ll need to document rent payments, expenses, and any communication related to the tenancy. This helps show that the arrangement is being treated just like any other rental.

Also, be aware that renting to close family—especially children—might raise red flags with the ATO. They may take a closer look to confirm that your deductions are based on a real investment strategy, not a personal favour.