Hi Chris & April,
Can you please explain further what these tax breaks are and what the abbreviations meant.
Is it not better to buy a house as soon as, hoping that the equity in 4 years will have overtaken what one may have saved in 4 years as a deposit. Perhaps you know better and will be able to throw further light on this i.e. rent vs purchase.
Thanks
Timi
LAFH = Living away from home allowance
It deducts from your taxable income your rental costs, and a deemed food allowance. The basis of it assumes that you are not a permanent resident, and as such need to service expenses in your home country (like a mortgage etc), but really it is just an incentive to go there as far as I can tell.
So, assuming a three person household, which is a $344 weekly food 'allowance' and $350/week rent, the total saving on one's taxable income is $36,000 per annum.
Since this is always going to be the top wedge of your taxable income, it would have probably be taxed at 30% otherwise (Oz tax at 30% for income between $30k - £75k).
So you save 30% x $36,000 = $10,800 each year. Or around $45k over the four years.
That's a fair bit of wedge each year to just give away.
The food allowance does change with the number of people - I think its only $186 a week if you are a single person, but I would check.
In terms of renting vs buying, I look at it in a different way to most people I think.
I do not view renting as 'dead money', after all it is buying me a service - the home I live in.
I do not view capital growth, and resulting increase in equity, as something gained if it only occurs through overall market rise. After all, you can never get to this money unless you sell up and rent, or downsize your property. Or move to a place where a similar property is much cheaper - e.g. Oz.
With regard to mortgages, I think people forget that there is also a lot of 'dead money' in a mortgage - its called interest, and you pay a lot of it.
Based on a $250k mortgage, at a 7.5% interest rate (which is an amazing rate in Oz at the mo), in those first four years you would pay around $73,000 in interest. You would pay back only $15,000 of capital on your mortgage.
In my view its a simple calculation, the amount of debt I would pay off by getting a mortgage immediately is a third of what I would save by taking the tax breaks.
PLUS I don't have any deposit, so its an academic exercise only.
PLUS I would need a mortgage much bigger than $250k!!
It deducts from your taxable income your rental costs, and a deemed food allowance. The basis of it assumes that you are not a permanent resident, and as such need to service expenses in your home country (like a mortgage etc), but really it is just an incentive to go there as far as I can tell.
So, assuming a three person household, which is a $344 weekly food 'allowance' and $350/week rent, the total saving on one's taxable income is $36,000 per annum.
Since this is always going to be the top wedge of your taxable income, it would have probably be taxed at 30% otherwise (Oz tax at 30% for income between $30k - £75k).
So you save 30% x $36,000 = $10,800 each year. Or around $45k over the four years.
That's a fair bit of wedge each year to just give away.
The food allowance does change with the number of people - I think its only $186 a week if you are a single person, but I would check.
In terms of renting vs buying, I look at it in a different way to most people I think.
I do not view renting as 'dead money', after all it is buying me a service - the home I live in.
I do not view capital growth, and resulting increase in equity, as something gained if it only occurs through overall market rise. After all, you can never get to this money unless you sell up and rent, or downsize your property. Or move to a place where a similar property is much cheaper - e.g. Oz.
With regard to mortgages, I think people forget that there is also a lot of 'dead money' in a mortgage - its called interest, and you pay a lot of it.
Based on a $250k mortgage, at a 7.5% interest rate (which is an amazing rate in Oz at the mo), in those first four years you would pay around $73,000 in interest. You would pay back only $15,000 of capital on your mortgage.
In my view its a simple calculation, the amount of debt I would pay off by getting a mortgage immediately is a third of what I would save by taking the tax breaks.
PLUS I don't have any deposit, so its an academic exercise only.
PLUS I would need a mortgage much bigger than $250k!!
Hope this helps!
Hi folks,
That was very helpful. Thanks. I have been informed that you can sacrifice a percentage of your salary towards your mortgage before tax. if you know about this, would you kindly share your expert knowledge. That would be very much appreciated.
Based on your recent explanation. I am inclined to believe that the juicy tax breaks may outweigh the salary sacrifice towards your mortgage. Are these tax breaks applicable all over Oz? in particular in Queensland and how do you apply for them? Is there a particular website to visit? What about if your objective is to become a resident with your family and you achieve this within 2 years? I do apologise for asking so many questions.
Thanks.
We are on a 457 and have been accepted for a mortgage no problem. We went through Westpac. We also got a response regarding the foreign investment approval within a day via email. We did a covering letter asking if they could do it quickly (just find a reason of some sort!) and we had it back in a day. We have been here 2 months and are completing on our house purchase in 2 weeks time.
Jess
we also had mortgage approved but decided against it as we would end up paying around $40,000 extra for the house with the stamp duty as on a 457 you dont get any relief on any house purchase even under $500,000 price,and you dont get the $7,000 first time home buyers grant so weve decided to wait till we get pr in june/july then buy,no point in giving away good earned cash
__________________
TRA SENT 29TH MARCH 07 APPROVED 27TH APRIL(BRICKLAYER)
25TH JUNE X RAYS & MEDS DONE
9TH JULY 457 LODGED & TRN RECIEVED
11TH JULY X RAYS & MEDS SENT
16TH JULY X RAYS & MEDS RECIEVED AT LCU
26th July OUR DOG FLEW TO PERTH
3RD AUGUST 457 GRANTED
11TH AUGUST BILLY & MARC ARRIVED IN PERTH
14TH AUGUST THE SHIPPERS ARRIVE
23RD AUGUST ME & GARY FLY TO PERTH CAN'T WAIT YAY
BILLY(45) JANETTE(36) MARC(17) GARY(13)
Hi folks,
That was very helpful. Thanks. I have been informed that you can sacrifice a percentage of your salary towards your mortgage before tax. if you know about this, would you kindly share your expert knowledge. That would be very much appreciated.
I'm afraid I don't really know about salary sacrifice for mortgages - if you start a new thread I'm sure someone else will answer - I'd be interested in this!
Quote:
Originally Posted by timi
Based on your recent explanation. I am inclined to believe that the juicy tax breaks may outweigh the salary sacrifice towards your mortgage. Are these tax breaks applicable all over Oz? in particular in Queensland and how do you apply for them? Is there a particular website to visit? What about if your objective is to become a resident with your family and you achieve this within 2 years? I do apologise for asking so many questions.
Thanks.
The LAFH is available in all of Oz -definitely in Qld since that's where we're going (Brisbane). In order to claim the allowance you need to submit a form after you have arrived and have a tax number - your employer in Oz should provide you with the forms etc to set up your tax # (mine did).
Our objective is to become resident, however we don't plan on doing this until toward the end of the four years, to maximise the tax saving (we won't be applying for residency immediately - probably after three years).
Then we should get the $7,000 contribution to the home purchase, and possibly this salary sacrifice (which I will have to look into now!)
Trying to find detailed info on the LAFHA allowances is like trying to find a needle in a haystack - your employer in Oz should be able to help you with the detail!
It seems that house prices in Brisbane are booming at the moment and so we didn't want to wait another 2-3 years before we get perm residency to buy a house. If prices increase as much as they did last year then on the house we're buying the price is going up about $100k a year so thought it best to buy now. Perhaps we haven't looked into it enough!
I agree affordibilty is a factor in buying a house - if they go up in price then the mortgage will need to be bigger, so less affordable.
We don't really have a choice since without a deposit you can't really buy in Oz (I haven't seen a 100% mortgage), and the rates would be terrible even if you could! They're pretty high as it is!!
I'm hoping for a pirce slowdown like we're having in the UK, since the global credit issues will inevitably have an effect in Oz, albeit it may be a bit delayed. Since I have no real knowledge of the Brissy buying market its a fairly uneducated guess!!!
Really informative thread, thanks to all who have contributed but can I just try and summarise what I have learnt so I can try and see my best options for when I arrive in a couple of weeks.
As I understand it, since I am arriving with my wife and youngest daughter on a 457, I will qualify for the LAFHA and as such once I apply (who to and where.... can anyone answer please?) I will be able to claim tax relief on $344 (food) + $350 (rent).
I am keeping an eldest daughter and a house in England (anyone who knows how best to handle rental income from England, please see other postings) so this will be really useful.
Is there anything else I can claim, such as transport (Car running costs etc.), rates, utility bills etc?
Grateful for any further tips and advice
Kind regards
John
__________________
Speculative Email to companies in Australia - 18 March 07
Request for telephone interview - 23 March 07
Telephone interview - 3rd April 07
Interview in London - 19 April 07
2nd Interview in London - 26 April 07
June - Offer of employment received
June - September Negitiating contract
Agreed contract - October 07
X-Rays and medicals - 6 Dec 07
X-rays and medicals processed 11 Jan 08
Visa granted 30 Jan 08
On our way Feb 08 (Melbourne here we come):biglaugh:
Really informative thread, thanks to all who have contributed but can I just try and summarise what I have learnt so I can try and see my best options for when I arrive in a couple of weeks.
As I understand it, since I am arriving with my wife and youngest daughter on a 457, I will qualify for the LAFHA and as such once I apply (who to and where.... can anyone answer please?) I will be able to claim tax relief on $344 (food) + $350 (rent).
Sorry John, but you're wrong on a number of issues.
There is no such thing as "qualifying" for a LAFHA, either you negotiated one with your sponsor before you signed a contract, or you didn't. Once you've signed up, it's probably too late to change any details. The LAFHA is not a concession given by the taxman, it is an allowance given to you by your employer. Just because an employer may chose to pay you a LAFHA does not relieve the employer of their obligation to pay you the minimum wage specified by law. For many employers there is no reason to offer a LAFHA to potential employees, it is administratively a pain in the butt and why pay more than you have too?
Of course some people with uncommon skills are worth more and their employers are happy to pay extra and go to extra effort, however you will need to negotiate that first, before signing on and before arriving here.
Quote:
Originally Posted by Johnthepom
I am keeping an eldest daughter and a house in England (anyone who knows how best to handle rental income from England, please see other postings) so this will be really useful.
As a temporary resident, you will not be required to declare overseas income in your Aussie tax returns. You might need to declare your Aussie income to the UK taxman along with your other UK income - but I'm not a UK tax expert.
Quote:
Originally Posted by Johnthepom
Is there anything else I can claim, such as transport (Car running costs etc.), rates, utility bills etc?
I will echo Bobs comments. LAFHA is not a given right for all 457 holders. The tax liability is with the employer and as such a lot of employers can't be bothered with the administration that goes with it. Also as soon as you make any moves to look like you want to stay permanently then the LAFHA stops.
As for loans, you can get loans but lender will only lend for the duration of your visa.
