Overseas CGT Event.... thoughts please

[Maidenvain]

Hi
I am looking from some feedback on my situation and Capital Gains Tax. Based on the below what do you believe to be the CGT likelihood. I am not an Australian citizen, but a resident for tax purposes.

1998 ? I lived overseas and purchased a house with my partner as main residence with no intention of ever leaving it.
2004 ? I was transferred to Australia for work temporarily, may partner stayed in the house, (I still paid for the house during this time, it was NOT income producing)
2007 ? I decided to stay in Australia and my partner moved here too. The house was rented out and became income producing. The house was still for tax purposes our ?principal place of residence?
2009 ? My partner and I separate, I purchased a unit in Australia.
2012 ? I rent out my unit in Australia due to needing to move and I rent elsewhere.
2013 ? My ex and I sell our overseas property (It was rented for 6years and approx. 60 days)

My questions are:
A) When did the overseas property cease to be my PPOR? Was it when it was used to produce income, or when I purchased my unit in Australia?
B) Given that both properties were purchased with the intention of living in forever at the time of purchasing and I did live in them for 6 and 3 years respectively from the date of purchase, is there a way they both be exempt?
C) I want to understand what the implications are on my unit in Australia that I now rent out, and if I should be keeping it or selling it within a certain period?
D) Can I chose to have a capital gain event on one of the properties only, surely if they aren?t both fully exempt, then one is, and I understand from the ATO website I can choose, is that right
E) We didn?t get a valuation of Market Value when the overseas property was rented out. How will the ATO assess Market Value?

Also I have never told the ATO about the overseas house, and therefore the 6 years of rental income and expenses, because up until buying in Australia I didn?t know I wouldn?t go back, and its negligent the amount of money we made off rent. I have gone back and worked it out retrospectively but not converted to AUD$. I?ve read on the ATO website that everything should be converted to the rate for that day or week, but um,, that?s going to take someone forever to do?

If I never bring the proceeds of the sale to Australia they wont know. But I want to bring it here to buy a house (I have cash savings here too). If I just bring it in and hope for the best, don?t tell them on my tax return, what are the chances of them finding out and investigating where I got the money from? I?m not talking a great deal of money for them, but its a lot for me as the mortgage was almost paid off so im getting all that principal back!

Here is the link that led me to believe we were ok: http://www.ato.gov.au/General/Capit...ng-as-your-main-residence-after-you-move-out/

It looks like we can ?choose? to have that as our main residence for the CGT event. See below extract: (link here http://www.ato.gov.au/General/Capit..._of_choices_available_under_capital_gains_tax)

I would really appreciate some advice on this one, i want to do the right thing, but i want to know what am up for and what my options could be between choosing which property to do it on.

Thanks in advance

 

[Rob G.]

Firstly ... this is complex and needs going over in detail with an $800 per hour international tax specialist.

Here is a brief overview just on the facts given to illustrate why you need to see that specialist.

I assume "bought with your partner" means both names on title as joint tenants or tenants in common.

Was there any change in proportionate ownership as part of a marriage breakdown agreement ? This could change the liability you have.

The deemed acquisition date for your interest is subject to two deeming rules which occur at about the same time.

Upon becoming a resident you are deemed to have acquired your overseas main residence for market value at that time.

For the purposes of the main residence exemption you are deemed to have acquired the dwelling for market value at the time first used to produce assessable income.

Whether you get the 3 years absence (no income) plus the 6 years (earning assessable income) for your interest depends upon your election. This would leave 60 days of non-exempt ownership from when deemed acquired in 2007 if you do not claim any other residence as your main residence. You would then get zero exemption for the unit until the date of disposal of the overseas residence.

You will get the CGT discount and a foreign income tax offset for any foreign tax paid - but watch out as this may be lost if you do not have sufficient Australian tax liability to use it against. Another reason perhaps for electing the overseas residence to be your main residence during your absence.

All this is subject to any Australian double tax agreement with the other country as to how capital gains tax is to be shared.

Also, there are information sharing agreements between Australia and other nations.

Just because a trickle of net rental income has not triggered an audit, do not assume that a fat capital gain will also be missed.

Quite often small amounts are not missed, they merely raise alerts which accumulate as part of the ATO risk assessment strategy.

See the other thread on ATO data matching.

Cheers,

Rob

 

[Maidenvain]

Thanks Rob

Its complex, but at the same time I feel relatively simple. Tenants in common, 50/50 share. The country is NZ. No rental income has ever crossed the tasman and come into Australia.

Can I just clarify on this please:

Whether you get the 3 years absence (no income) plus the 6 years (earning assessable income) for your interest depends upon your election. This would leave 60 days of non-exempt ownership from when deemed acquired in 2007 if you do not claim any other residence as your main residence. You would then get zero exemption for the unit until the date of disposal of the overseas residence.

Where you say 'if you do not claim any other residence as your main residence' does that mean ever? or in which period?

It sounds like I can get a full exemption on 1 property at least, but will the other property get a partial or no exemption in your opinion?

I suppose i need to decide which then is better for me to pick as the full exemption.

Neither property was ever purchased with the intent to rent out, so its a shame that you get stung for trying to look after yourself and not bludge off the government!

 

[Rob G.]

No multiple main residence exemption overlap.

If you elect property 1 as your main residence then the unit will not be exempt for the overlap. You will need to apportion exemptions for the unit.

NZ eh ? So no capital gains tax there.

Still need specific advice about the Australia-NZ double tax agreement which overrules domestic law.

Also advice regarding previously not declaring foreign source income e.g. voluntary disclosure to mitigate possible penalties.

Cheers,

Rob

 

[Maidenvain]

That's right no capital gains tax in nz. They are considering bring it in, but its a little more about intent. No stamp duty either...

Was speaking to a friend who still has an IP in NZ, but lives/works/resides in Aus. They do the rental income tax returns in NZ and the salary etc in AUS. Might look into doing that retrospectively with the rental income for the 6 years and 60 days.

Ive been reading up on the Double Tax agreement, but will seek advice.

 

[HD_ACE]

That's right no capital gains tax in nz. They are considering bring it in, but its a little more about intent. No stamp duty either...

Was speaking to a friend who still has an IP in NZ, but lives/works/resides in Aus. They do the rental income tax returns in NZ and the salary etc in AUS. Might look into doing that retrospectively with the rental income for the 6 years and 60 days.

Ive been reading up on the Double Tax agreement, but will seek advice.

This is how i do mine.
If positive pay tax in nz. If a loss carry it over to aus income.

Cheers

 

[Maidenvain]

Thank you.

So I just found out through further investigation that whilst I am an Australian resident for tax purposes I am also a Temporary resident, as im on a non protected special category visa, which means any foreign income and cgt is exempt. see below from the ATO:
You are a temporary resident if:
A) you hold a temporary visa granted under the Migration Act 1958
B) you are not an Australian resident within the meaning of the Social Security Act 1991
C)your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.

However as per usual 1 small technicality. I have now met an Australian citizen resident spouse, and we put each other as spouse on our tax returns last year.

I seriously cant win!!!

Does anyone know anything about this?

 

[Paul@PFI]

Resident "for purposes of social security" doesnt necessarily mean same applies for income tax :-(

Remember the SCV was introduced to effectively cut-off NZers from social security. The "Bondi tax break" law. That all the SCV attempts to do. You can effectively live here forever and be a tax resident. Yes - then the NZ property income is assessable here NOT in NZ and Aus CGT applies not the Nil rate in NZ "IF" you are a AUS tax resident. To be fair the SCV does allow limited social security after 10 years. Its easier to become an Aus citizen though to get social security.

Check the online tool here : READ ALL QUESTIONS VERY VERY CAREFULLY

http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=resident.xr4&go=ok

 

[Paul@PFI]

Ive been reading up on the Double Tax agreement, but will seek advice.

DTA only applies if there is a tie break....DTA considers "residency" but refers to residency in more waffly terms than either tax law as its an OECD "standard"....If you are here and you satisfy Aus tax residency the DTA wont help.

Finally found what I was looking for...Its on FIRST PAGE of the previous tool link I posted...Are you migrating ??? Under "Help About" CLICK THIS BOX....Read what it says

Determination of residency
Migrating and settling in Australia


Resident for taxation purposes

About migrating to Australia
Immigrants must hold a current permanent residence visa, issued by the Department of Immigration and Citizenship, and intend to reside permanently in Australia. Persons coming to Australia from New Zealand do not need a permanent residence visa but still need to intend to reside permanently in Australia.
Resident for taxation purposes
You will only be an Australian resident for taxation purpose when you start to settle permanently in Australia. Holding a permanent residence visa is not sufficient to make you an Australian resident for taxation purposes.

If you are still spending a considerable amount of time outside of Australia, you may be considered to be postponing your final settlement. In this case, you should answer No to this question.

So your intent is everything !! "Permanent does not mean forever...Two + years might trigger this. But its not straight forward. Selling your NZ property might actually do more harm than good...It might show you have settled here forever. Ditto marriage and buying a home here, raising kids etc.

 

[Maidenvain]

Thank you Paul

This is what I read to lead me to believe that I am considered a temporary resident in regards to foreign investment income.

http://www.ato.gov.au/General/Inter...duction/?default=&page=1#What_to_read/do_next

I am an Australian Resident for tax purposes, have been for 9 years, but because I am on a non-protected SCV, I believe this applies to me.

My accountant is looking into this for me and going to speak to the NTAA.

I 100% believe this to be the case, but what im not sure about, is if 14 months ago I met an Australian man and moved in together, and declared spouse status on our Tax Returns, that means from that date I am no longer a temporary resident for the NZ property capital gain, and from that date it must be calculated. If that's the case, do I still apply the main residence exemption, or the 50% capital gains tax discount?

Thanks again

 

[Rob G.]

DTA only applies if there is a tie break....DTA considers "residency" but refers to residency in more waffly terms than either tax law as its an OECD "standard"....If you are here and you satisfy Aus tax residency the DTA wont help.

Finally found what I was looking for...Its on FIRST PAGE of the previous tool link I posted...Are you migrating ??? Under "Help About" CLICK THIS BOX....Read what it says

Determination of residency
Migrating and settling in Australia


Resident for taxation purposes

About migrating to Australia
Immigrants must hold a current permanent residence visa, issued by the Department of Immigration and Citizenship, and intend to reside permanently in Australia. Persons coming to Australia from New Zealand do not need a permanent residence visa but still need to intend to reside permanently in Australia.
Resident for taxation purposes
You will only be an Australian resident for taxation purpose when you start to settle permanently in Australia. Holding a permanent residence visa is not sufficient to make you an Australian resident for taxation purposes.

If you are still spending a considerable amount of time outside of Australia, you may be considered to be postponing your final settlement. In this case, you should answer No to this question.

So your intent is everything !! "Permanent does not mean forever...Two + years might trigger this. But its not straight forward. Selling your NZ property might actually do more harm than good...It might show you have settled here forever. Ditto marriage and buying a home here, raising kids etc.

1) DTA overrules domestic laws of either contracting nation

2) You are confusing the domicile test with the common law