Leaving Australia and CGT Calculation...Please Help!

[kristaje]

Hubby got a very good work opportunity in HK, and after umming and ahhing, we decided to go. The job is a permanent one and we expect to stay in HK for at least 10 years - if not more. We have no families nor PPOR in Australia, but own several IPs.

From the examples in ATO website, it's very clear that we'd be classified as a non-resident for tax purposes.

My questions are around the options for a non-resident to disregard any capital gains/losses while not resident (pls see excerpt from ATO website below).

Questions:

1. Does this rulling apply to IPs?

2. We also have IPs purchased under Fixed Trust and Family/Discretionary Trust structures. Both Hubby & I are trustees and directors for the trusts. Will trusts be treated similar as Australian resident/non-resident?

3. If yes, am I understanding it correctly that if we, say leave Australian for 20-years and sell property when back in Australia, I won't have to pay capital gains for this 20-year period?

4. Also in regards to the statement on capital losses, does this means that I can't claim for any depreciation in this 20-year - if electing for this option?

5. How does this change of situation affect IPs purchased under SMSF?


Excerpt from ATO website (http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/29092.htm&page=3&H3):

Capital gains tax (CGT) and going overseas
Ceasing to be an Australian resident

If you go overseas and cease to be an Australian resident, or a resident trust for CGT purposes, you are taken to have disposed of certain assets for their market value at the time you cease being an Australian resident.

If you ceased being an Australian resident or a resident trust for CGT purposes:

- before 12 December 2006, we treat you as though you disposed of each of your assets that did not have the necessary connection with Australia for their market value at the time you ceased being a resident

- on or after 12 December 2006, we treat you as though you
disposed of each of your assets that are not taxable Australian property for their market value at the time you ceased being a resident
immediately rei-acquired indirect Australian real property interests and options or rights to acquire such interests for their market value.

Exemption for a temporary resident who ceases being an Australian resident

There is an exception for temporary residents. If you are a temporary resident when you cease to be an Australian resident, we do not treat you as though you disposed of any of your assets.

Exemption for a short-term resident who ceases being an Australian resident

If you are an individual who was in Australia on 6 April 2006 and have remained here as an Australian resident since that date, you can disregard any capital gain or capital loss if you were an Australian resident for less than five years during the 10 years before you stopped being one either owned the asset before last becoming an Australian resident, or inherited the asset after last becoming an Australian resident.

Choosing to disregard capital gains and capital losses when you cease being an Australian resident

If you are an individual, you may choose to disregard all capital gains and capital losses you made when you stopped being a resident.

If you ceased being a resident before 12 December 2006 and you make this choice, those assets are taken to have the necessary connection with Australia until the earlier of:

- a CGT event happening to the assets (for example, their sale or disposal), or
you again becoming an Australian resident.

- If you ceased being a resident on or after 12 December 2006 and you make this choice, the assets are taken to be taxable Australian property until the earlier of:

- a CGT event happening to the assets (for example, their sale or disposal), or
you again becoming an Australian resident.

The effect of making this choice is that when working out your capital gains and capital losses on those assets, we take into account the increase or decrease in the value of the assets from the time you cease being a resident to the time:

- of the next CGT event, or
- you again become a resident.

Thanks, kristaje.

 

[Liverpool St]

Overseas

Thanks for asking these questions as I would be interested also. As a non resident I believe you lose the tax free threshold. It is a bit of a mine field.

LS

 

[kristaje]

Hi LS,

Yes, unfortunately we'll loose the tax free threshold. But guess this is a small price to pay, as don't expect our future Australian income (from pure IPs) will be too big at this stage, and HK's tax rate is much lower than here - top bracket is only 17%!

Cheers.

 

[Liverpool St]

Hi LS,

Yes, unfortunately we'll loose the tax free threshold. But guess this is a small price to pay, as don't expect our future Australian income (from pure IPs) will be too big at this stage, and HK's tax rate is much lower than here - top bracket is only 17%!

Cheers.

From memory there is no CGT on disposal of shares for non residents. Something brought in for the politicians on long term stays overseas ????

There is a book titled "the aussie expat, the luckiest person on earth" by ??? which I read a few years ago gives some insight into expats with properties

 

[kristaje]

Thanks!

Hi LS,

Thanks for the book info.
Just search the book name in google and found this link: http://www.advance.org/en/art/1267/

Unfortunately, property is excluded from the CGT exemption while away. But looks like there are lots of info in the book, so will try to get my hand on one.

Thanks again

When leaving Australia to work overseas, Steve highlighted the following key considerations that should be taken into account:

· Determine whether you remain a resident or become a non-resident for Australian tax purposes. Financial institutions and companies need to be notified of your non-residency status for interest and dividend purposes respectively.

· The current law provides for some assets to be deemed as sold on the date of departure, which can create a tax liability. Real estate is not affected by this rule. Most investment assets (except property) become free of Capital Gains Tax (CGT) whilst overseas, if tax has been paid up to the date of change in residence.

· Decisions about superannuation should be considered. In most cases, it is best to leave your superannuation intact for your eventual return. There is no major advantage in making contributions whilst overseas, as there is no tax deduction available.

· The Family Home remains free of CGT for 6 years even if it is rented out. Beyond the six years if you have not returned to Australia, the property may become subject to CGT on a pro-rata basis.

· Any HECS debt at the time of departure will continue to be due as long as you are earning money and filing a tax return in Australia.