JP1

hi,

i am resident in australia for tax purposes and am thinking of buying some shares in the UK (or investing in a UK investment trust).

as far as i can tell, if i hold on to this investment for more than 1 year i should be able to claim a 50% discount on any gain. does anyone know if this is the case? from what i have seen and read, the nature and location of the asset does not affect the eligibility for the 50% discount.

cheers

Fardell

I think you are right in respect of the 50% reduction in capital gains tax, but I would be very wary about investing via investments trusts, versus straight equities. Australia has a very unenlightened approach to people investing in what are called "foreign investments funds" (ie. FIF's) and they do things like tax unrealised (yes, unrealised!) gains on a yearly basis and don't provide corresponding deductions for capital losses. Very complicated area - best to do make sure you don't invest in them unless you have a good reason and know what you are doing. Search www.ato.gov.au for more (very boring!) details - we should all rise up and get these regs changed - they even apply to UK personal pensions I'm told.

geordie downunder

I argue with the tax office quite a bit on this (I gave up in the end).If the shares do not produce an income the ATO can count any capital gain as income as you have invested for gain only.This gain will then be taxed at your marginal rate rather than the CGT concession.Should they produce income this must be declared and a credit will be given for company tax credit in the uk,but you will pay tax on the remainder.Interest on money borrowed to invest o/seas is not tax deductable (I am sick of asking for a written ruling on this).Should you invest in OZ then the interest is a tax deduction and you have the benefit of the franking credits which should give higher returns,Oz companies also tend to have a higher dividend payout ratio,again increasing returns.Keep this quiet but when you attend AGM,s the cost of accomodation ,airfares etc is also a tax deduction for that meeting.I am sick of trying to get a written ruling for o/seas AGM,s.www.asx.com.au has good lessons if you are beginning on an investment career,good luck.

JP1

Thanks. Oh dear, it is rather complicated!

If you invest in a foreign unit trust and don't receive any income wouldn't that be a situation where you would expect to be entitled to the 50% CGT reduction when you sell the units?

Also, if you sell the units before 30 June in any one year I think the FIF regs don't apply? Wouldn't that mean you would just pay CGT on the gain (with the 50% reduction, if the units were previously held for more than one year)?

How much info about the foreign units held do the ATO ask for - or do they generally take your word for it that you made $x on x foreign units that you sold?

Grayling

They will want to know all about.

I do not think it a good idea to be dishonest with the tax office especially if you are not yet a citizen.

G

lesleys

What sort of visa do you have and how long have you been here? Don't ask me to explain but this can have a bearing on FIF tax.

sunshinesarah

Not boring at all. Just scares me that people's replies make me realise how little i know!!

Does this 50% discount apply if we were to buy an investment property in the Uk and sell it years down the track purely for the capital gain???
Any help appreciated

SUnshine Sarah

JP1

Someone has mentioned that if your (plus associates) total foreign investments are worth under $50,000 that the FIF rules don't apply. Assuming this is the case, does this mean that you don't need to mention these investments in your return? Or do you just mention them, but as they are excluded from the FIF you don't need to pay FIF income?

In any event, when you sell the investments you'd need to declare the capital gain.

Grayling

As I understand it...the $50000 is not a tax free allowance. It is the amount you can hold without paying tax.

Once you go above that limit you are taxed on the lot :scared:

I am no expert and would suggest that this is an area for professional advice.

G

geordie downunder

I would suspect that the unit trust receives income and it is reinvested in more units for you,or income is distributed on a six monthly basis,so as here, the choice of dividend income or using the DRP.Whichever you choose the income must be declared.Selling around 30 june is not really a wise thing,you will need to pay the CGT by the end of october,selling on 1 july means you get to keep the capital gain until the following october so you get the use of the money for 16 months rather than 4 months.However if you feel that the unit (share ) price is about to plunge then sell,do consider short term volatility is no reason to sell,who knows how much they will be worth in 10 or 20 yrs time and how much income they will produce over the years,you may be selling that for a small gain now.The tax office will take your word for it,that wonderful line on the tax form covers them,basically you state that you have declared all income and have proof of all deductions.should they audit you and you have not been truthful then you have to prove averything,you have signed a piece of paper that says you can.Ring ATO and ask them,they have a very helpful queries dept that will do the best they can to answer any questions.It is not complicated,you are complicating it by investing in o/seas countries without researching the taxation aspects of it.I realise your question is research and you will probably find that it is very simple.For my o/seas investments in the US the US tax office takes 15% tax then income is declared and I get the tax credit for that 15%.If I need to pay tax at 30% then i have paid 15% to the US and ATO takes a further 15% to make up the full tax.I probably lead you astray a bit with the info I gave,I apologise for that if it caused you worry,the rule is aimed at very wealthy people where paying CGT at approx 25% can vastly reduce the tax payable if they were to pay company tax rates of 30%,sometimes resulting in millions not being paid.Telephone ATO and explain what you want to do and they will help you,they are not a big brother organisation there to screw you ,they only do that if you try to cheat them,Good luck.