It's pretty obvious that buying a house with cash has tax advantages. It's also simply easier. But only 20% of transactions in Australia are done in cash.
So, is it actually a good deal? Let's find out.
How common are cash house purchases in Australia?
A significant portion of Australian home buyers are opting to purchase properties outright with cash. In the 2023-24 financial year, there were 140,572 cash purchases across New South Wales, Victoria, and Queensland, accounting for 26.5% of all residential transactions. This trend is particularly notable among downsizers, tree changers, and sea changers who leverage equity from previous property sales to buy without mortgages.
Can I buy a house with cash without proof of income?
Yes, in Australia, purchasing a property with cash does not typically require proof of income, as no mortgage is involved. However, buyers must comply with legal obligations, including verifying their identity and ensuring the funds' legitimacy to prevent money laundering. Significant cash transactions must be reported to AUSTRAC.
What is the mandatory cash reporting level?
In Australia, private individuals must report cash transactions of AUD 10,000 or more when making certain types of purchases. However, this obligation typically applies to businesses rather than individuals.
For private persons, the main concern is ensuring that large cash payments comply with anti-money laundering (AML) regulations enforced by AUSTRAC (Australian Transaction Reports and Analysis Centre). While individuals do not need to report cash transactions themselves, financial institutions (such as banks) and certain businesses (like real estate agents and car dealerships) are required to report cash deposits, withdrawals, or transactions of AUD 10,000 or more.
Additionally, structured transactions — where someone breaks a large cash amount into smaller transactions to avoid reporting requirements—are illegal. If an individual frequently deals with large cash amounts, they may face scrutiny from AUSTRAC or the Australian Taxation Office (ATO).
How can a foreigner buy a house in Australia with cash?
A foreigner can buy a house in Australia with cash, but they must follow strict regulations set by the Foreign Investment Review Board (FIRB) and comply with Australian taxation and legal requirements:
Foreign buyers must apply to the Foreign Investment Review Board (FIRB), which assesses whether the purchase aligns with Australia’s national interest. The key details include:
How does buying a house in cash affect taxes?
|
Tax Type
|
Buying with Cash
|
Buying with a Loan
|
|
Stamp Duty
|
Required (Varies by state)
|
Required (Varies by state)
|
|
Foreign Buyer Surcharge
|
Applies to foreign buyers
|
Applies to foreign buyers
|
|
Capital Gains Tax (CGT)
|
Applies when selling
|
Applies when selling
|
|
Mortgage Interest Deduction
|
Not available
|
Available for investment properties
|
|
Land Tax
|
Applies (unless exempt)
|
Applies (unless exempt)
|
|
Tax Reporting (AUSTRAC)
|
Must declare source of funds if over $10,000
|
Not required for loan payments
|
|
Lender’s Mortgage Insurance (LMI) Tax Deductibility
|
Not applicable
|
LMI may be tax-deductible for investment properties
|
|
Negative Gearing Benefits
|
Not available
|
Available for investment properties
|
|
Bank Fees & Loan Application Costs
|
None
|
Some fees may be tax-deductible for investment properties
|
Is buying with cash a better investment than buying with a mortgage?
Purchasing property with cash offers advantages such as immediate ownership, avoidance of interest payments, and increased negotiating power. However, it also ties up significant capital that could be invested elsewhere for potentially higher returns. Using a mortgage allows for leveraging funds, potential tax benefits, and maintaining liquidity, but involves interest costs and financial risk. The optimal choice depends on individual financial circumstances, investment goals, and market conditions.
However, there are different scenarios. If you are interested in where to buy investment property in Australia and are considering the advantages of buying a house for cash, it is important to consider that a house already bought for cash can be used as collateral in a bank.
