Living overseas. CGT reduction question.

luce.rocks

luce.rocks

Hi folks.

We moved back to Spain in September. I have some rural-zoned vacant land that I bought in 2011/2012. I finally got a building entitlement for it in October. Now I'm keen to sell.

My question is: what's the deal with the CGT reduction now that I'm living overseas? Can I still claim to be an Australian resident for tax purposes? Or am I now a non resident? And if I'm a non resident do I lose the CGT reduction entirely, or just a pro-rata part of it for the time I've been living in Spain?

I'm guessing there's no way to claim I was intending to build a house on it, ergo it was my primary place of residence, but then I changed my mind and moved overseas...
 
Non-residents lost the CGT discount on 8th May 2012. The rules now mean unless you hold a valuation at 8th May (a reg valuer !!) then the discount can apply to the CGT up to that point. Therafter its not eligible for discount. Strategy is get a valuation !!

Speak to a reg valuer and seek a valuation at 8May12 for CGT purposes. Wont cost too much but may save close to 50% tax.

Your description indicates acquisition was intended to be a future residence but this never occurred. No main residence exemption since there has never been a residence to occupy. The land seems like its a mere realisation so its subject to CGT.

Non-resident tax scales aren't as nice either. No $18K tax free etc...

Check Spain tax law. They may tax you on worldwide income and give credit for the CGT paid here. You seem to a be a tax resident of spain now.
 
I bought it for $110k and now that it has building entitlement it's probably worth a smidge over $300k. But all that gain would be in the last month, so a valuation from May 2012 probably won't help much. Unless I'm misunderstanding you (not unlikely!). $200k CG with no exemption is a lot of tax dollars to have to part with considering I've only been out of the country a few months.

Any creative ways around it? Once I find a buyer, can I go home to AUS and say I was just holidaying in Spain? And then go back to Spain later? If not, it would seem like the best idea would be to not sell. But I could really use the cash over here.
 
Just because you are in spain doesn't mean you are a non resident of Australia. It will depend on the circumstances.
 
luce.rocks said:
I bought it for $110k and now that it has building entitlement it's probably worth a smidge over $300k. But all that gain would be in the last month, so a valuation from May 2012 probably won't help much. Unless I'm misunderstanding you (not unlikely!). $200k CG with no exemption is a lot of tax dollars to have to part with considering I've only been out of the country a few months.

Any creative ways around it? Once I find a buyer, can I go home to AUS and say I was just holidaying in Spain? And then go back to Spain later? If not, it would seem like the best idea would be to not sell. But I could really use the cash over here.
Click to expand...

Your questions propose fraud or indicate you don't have facts. The true issue is are you a non-resident ? The response "go home" seems to contradict. Did you migrate and have perm residency in spain ? Temp visa ? What did your DAPC say when you left ??

Perhaps the solution is the seek tax advice on your personal circumstances. You completed a departing Australia passenger card (DAPC) that the ATO will refer to for residency issues. It asks if you are leaving permanently and a few other things. ie If you have a temp visa then you may not be a Spanish tax resident. You may still be a resident Aus taxpayer. Tax advice will address residency first then how CGT would be calculated.

I doubt that the gain occurred in one month. There is a CGT issue you don't understand that addresses the valuation problem.
 
Paul@PFI said:
Your questions propose fraud or indicate you don't have facts. The true issue is are you a non-resident ? The response "go home" seems to contradict. Did you migrate and have perm residency in spain ? Temp visa ? What did your DAPC say when you left ??

Perhaps the solution is the seek tax advice on your personal circumstances. You completed a departing Australia passenger card (DAPC) that the ATO will refer to for residency issues. It asks if you are leaving permanently and a few other things. ie If you have a temp visa then you may not be a Spanish tax resident. You may still be a resident Aus taxpayer. Tax advice will address residency first then how CGT would be calculated.

I doubt that the gain occurred in one month. There is a CGT issue you don't understand that addresses the valuation problem.
Click to expand...

I don't have permanent residency yet but will probably have it within a few weeks. I ticked the permanently departing box on the DAPC (they didn't have a box that said 'a couple of years, let's just see what happens'). And I told Centrelink to stop the FTB and CCB/CCR because we were leaving the country indefinitely.

I'm not proposing fraud (at least i hope I'm not) I'm just very flexible. We don't work over here (we're hoping to open some cafes next year), we're here because we want Harriet to learn Spanish (my husband is Spanish). If we need to come back and reside in AUS for a while, we can. Or I can just wait and sell in a few years if/when we come back.

I've got my mum contacting an accountant today. I just wanted to to have a better idea of what to get her to ask about, plans, loopholes, etc. If I transfer the land to her as a gift can I just pay her stamp duty and avoid the CGT? Then she can build a yurt on it, live there for a few years, and then when she retires to Spain in the future, she can sell it before she comes and get the PPOR exemption. I don't know, I'm just trying to find creative (but legal) ways to avoid losing 100k in taxes if I sell from Spain.
 
I found this on a PWC site:

The effect of the measure is to "...apportion the CGT discount for discount capital gains where an individual has been both an Australian resident and a foreign or temporary resident, during the period after May 8, 2012. The discount percentage will be apportioned to ensure the full 50% discount percentage is only applied to periods where the individual was an Australian resident."

http://www.pwc.com/en_GX/gx/hr-mana...tralia-removes-capital-gains-tax-discount.pdf

That gives me some hope. Afterall, I've only been in Spain for a few months. If I've been a Australian resident for 5/6 of the time I've owned the property, and they can apportion the discount to that time, then hopefully I'm not too disadvantaged. Is that how you would interpret that quote?

I'll get my mum to talk to an accountant for me anyway, but it would be good to send her in with some very specific questions.
 
That's comes after determining residency. If you are Aust resident then you get the discount for 100% of it anyway. Proportioning and valuations are only a issue for a non-resident who was a resident etc. These rules seem very simple but start with a decision about residency.

Its important to understand your tax residency. If you are a AUS resident taxpayer any income earned wordwide would be subject to Aust tax. If there is a cap gain that could be taxed at a high marginal rate.

The description that you may come back may be fatal to non-residency. You appear not to have made a decision to depart permanently. Your domicile is spain. You may well be resident in spain. Just not permanently. The visa is adequate at this time to support that view (you don't have a perm residency).

The ATO has a residency calculator for inbound and outbound persons. Don't use the wrong one !! Use this one. Answer each question VERY slowly reading every single word and hyperlink for definitions checking the more information link. Don't try to answer it how you want to answer it - Base it on precise words and facts. A good example is the hyperlink for the word "emigrate"...It explains if you don't have a perm migration visa from spain you aren't abandoning Australia.
 
Thanks Paul. I'll check out the residency calculator. I'm pretty sure I'm going to be a non resident. I have my final interview for Spanish residency next Monday. Our intention is to be her for 5-10 years, depending on how much we enjoy it, so that Harriet can learn Spanish from infancy. Then we'll return to Australia for high school for Harriet. In the mean time we will buy property here, open a business here, etc., etc.

What I meant about coming back is that we could come back and live in Oz for a year or something if it was going to make a big difference. We're really flexible. We could just treat this trip like a Xmas trip to see the family. We came for 3 months last year at Xmas, so it's pretty much the same thing. That, and that Australia will always be my home, because I'm Aussie :)
 
Paul@PFI said:
The description that you may come back may be fatal to non-residency. You appear not to have made a decision to depart permanently. Your domicile is spain. You may well be resident in spain. Just not permanently. The visa is adequate at this time to support that view (you don't have a perm residency).
Click to expand...

You do not have to abandon Australia completely to be a non-resident.

An intention to reside in another country for a substantial period may be enough.

You seem to be residing with family and establishing your routine, social and business ties in Spain.

Pretty good argument usually, but always good to seek competent advice since details may matter.
 
Yes Rob...That's a good point. Its one of the many areas of uncertainty and many assume you jump on a plane and its a change of residency. Sometimes yes. Sometimes no. You do need more than just a one way ticket.

The ATO have been a bit aggressive in this area and can be happy to indicate that when you first leave you are still resident but when visa approvals etc finalise and then you relocate later its the relevant date.

My view is if a large transaction hinges on a issue of residency you should seek advice before acting.
 
I had a client ask to to review a put/call contract for the purchase of an property. I asked why would there be a put/call and made enquiries and it seems the owner is living overseas but returning early next year. The owner seems to think he can get the 50% discount by entering an option agreement now and then entering a contract of sale agreement once back in Australia.

I told the potential purchaser this is not the case, but the vendor is insisting he won't enter into a contract of sale now.
 
Now that I know they apportion the CGT discount, I'll go through with the sale regardless of what my status is (assuming I can find a buyer). I haven't been away for long enough for it to make much of a difference.

Out of curiosity, it sounds like most of the time people are trying to argue that they are non-residents, rather than the opposite. I guess it's to protect income they earn overseas. Seeing as I don't earn any income here in Spain, are there any other benefits to being a non resident?
 
luce.rocks said:
Now that I know they apportion the CGT discount, I'll go through with the sale regardless of what my status is (assuming I can find a buyer). I haven't been away for long enough for it to make much of a difference.

Out of curiosity, it sounds like most of the time people are trying to argue that they are non-residents, rather than the opposite. I guess it's to protect income they earn overseas. Seeing as I don't earn any income here in Spain, are there any other benefits to being a non resident?
Click to expand...

Assuming you don't have overseas incme, probably more benefits for you to remain a resident here. You will get lower tax rates and a tax free threshold.
 
Ah yes. The tax free threshold - that's a good point. Whether or not you get the full cgt discount, the tax free threshold I assume applies to the tax year when you entered into a contract, and will have a huge influence on the amount of tax you have to pay. Your capital gain (which may or may not be discounted) is added to your taxable income for the year, and you are taxed on the total income. It's not just taxed directly on the total gain.
 
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