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Capital Gains Tax

Capital Gains Tax

Old Apr 1st 2005, 4:08 pm
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Default Capital Gains Tax

Hi

If we left a property in the UK and rented it out and went on to buy a property in Australia would we be liable for capital gains tax when we sell the UK property?

Have seen it suggested that you have six months to sell a UK property and transfer the money before capital gains becomes payable, is this correct? Have never seen anything in black and white about tax rates for capital gains or any reliefs available. Has anyone any advice?

Many thanks.
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Old Apr 1st 2005, 6:28 pm
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Default Re: Capital Gains Tax

Originally Posted by kiddij
Hi

If we left a property in the UK and rented it out and went on to buy a property in Australia would we be liable for capital gains tax when we sell the UK property?

Have seen it suggested that you have six months to sell a UK property and transfer the money before capital gains becomes payable, is this correct? Have never seen anything in black and white about tax rates for capital gains or any reliefs available. Has anyone any advice?

Many thanks.
There's loads of stuff on CGT here, just do a search?
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Old Apr 2nd 2005, 12:59 am
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Default Re: Capital Gains Tax

Originally Posted by kiddij
Hi

If we left a property in the UK and rented it out and went on to buy a property in Australia would we be liable for capital gains tax when we sell the UK property?
You can claim your Uk property as your principle place of residence (provideing you've lived in it yourself) up untill you buy a property in Oz (for up to 6 years). If you then claim your Oz property as your PPOR the CGT liability starts on your Uk property then. So if your UK property is worth $400,000 when you purchase you Oz property and when you sell it (providing it's at least 12 months later) for $600,000 half the gain ($100,000) will be added to your income for that year and liable for tax.
Have seen it suggested that you have six months to sell a UK property and transfer the money before capital gains becomes payable, is this correct? Have never seen anything in black and white about tax rates for capital gains or any reliefs available. Has anyone any advice?

Many thanks.
Wrong this only applies to pension transfers. There is no seperate CGT tax here it is added to your earned income and taxed as such. If you sell the property within 12 months you don't get the 50% allowance and the whole $200,000 will be liable for tax.
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Old Apr 2nd 2005, 1:23 am
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Default Re: Capital Gains Tax

Originally Posted by Kiwipaul
Wrong this only applies to pension transfers. There is no seperate CGT tax here it is added to your earned income and taxed as such. If you sell the property within 12 months you don't get the 50% allowance and the whole $200,000 will be liable for tax.
You also need to be wary of currency fluctuations. My accountant this week informed me that cash I had in a sterling account had increased in A$ value because of exchange rates in the 03/04 tax year and that I was liable for tax on the increase in A$ value.

FIFs (Foreign Investment Funds) are also a pain for migrants. If you have a UK investment fund that grows in value by say 10% in the year after you emigrate, then you're liable for tax on that growth even though you did not receive that growth as income or realised the growth by cashing it in.

The simplest thing to do, though not always the most financially beneficial thing to do, is cash in all your non-Aussie non-pension assets before you arrive in Aus. Start with a clean sheet and aussie dollars in the bank.
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Old Apr 2nd 2005, 1:40 am
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Default Re: Capital Gains Tax

Originally Posted by kiddij
Have seen it suggested that you have six months to sell a UK property and transfer the money before capital gains becomes payable, is this correct? Have never seen anything in black and white about tax rates for capital gains or any reliefs available. Has anyone any advice?

Many thanks.
This shows why an online forum is the last place you should be looking for tax advice - there are too many urban myths floating around.

There is a '6 month rule' that affects *some* pension transfers, not other assets.

There is a possibility of an exposure to Australian capital gains tax, but the place to look up the facts is http://www.ato.gov.au

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Old Apr 3rd 2005, 9:03 am
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Default Re: Capital Gains Tax

Originally Posted by welshpom
You also need to be wary of currency fluctuations. My accountant this week informed me that cash I had in a sterling account had increased in A$ value because of exchange rates in the 03/04 tax year and that I was liable for tax on the increase in A$ value.

.
Since June 03 all transactions abroard have to be converted to oz dollars on the day they occur using the exchange rate for that day.

I have an investment property in NZ which has about 100 transactions throughout the year (Rent, mortage, rates, expenses, etc) and the Oz tax office want me to work all these transactions in Oz dollars using the exchange rate for the particular day.

This is totally beyond my ability to work out 100 different transactions using 100 different exchange rates and getting a meaningfull result. So I just work it out in NZ$ and use the end of year exchange rate to convert to Oz dollars.

I've told them that if they want to do it their way I'll supply the details in NZ$ and they supply the results. The tax consultant I spoke to admitted that it was a new regulation and their were a few anomalies that should get ironed out over time. It also took the tax office ages to find someone who had even a modicum of knowledge of this subject.

No one from the tax office has ever asked me for any details of my investment transactions, they just accept what I put on the tax return.
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Old Apr 3rd 2005, 10:52 am
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Default Re: Capital Gains Tax

Originally Posted by Kiwipaul
Since June 03 all transactions abroard have to be converted to oz dollars on the day they occur using the exchange rate for that day.

I have an investment property in NZ which has about 100 transactions throughout the year (Rent, mortage, rates, expenses, etc) and the Oz tax office want me to work all these transactions in Oz dollars using the exchange rate for the particular day.

This is totally beyond my ability to work out 100 different transactions using 100 different exchange rates and getting a meaningfull result. So I just work it out in NZ$ and use the end of year exchange rate to convert to Oz dollars.

I've told them that if they want to do it their way I'll supply the details in NZ$ and they supply the results. The tax consultant I spoke to admitted that it was a new regulation and their were a few anomalies that should get ironed out over time. It also took the tax office ages to find someone who had even a modicum of knowledge of this subject.

No one from the tax office has ever asked me for any details of my investment transactions, they just accept what I put on the tax return.
Hi Paul,

You may be doing it right (if you have done the $250,000 balance election - re http://www.ato.gov.au/large/content....tent/34043.htm).

I think what you described is exactly the case that this election is meant to cover. Specifically the three exemptions given in the link are:

- a forex gain or loss under forex realisation event 2 resulting from a taxpayer withdrawing an amount from a foreign currency denominated account with a credit balance (e.g. the fact that this month's council rates payment is worth more or less in AU$s than it did last month )
- a forex gain or loss resulting from a taxpayer depositing an amount into a foreign currency denominated account with a debit balance, but only to the extent that the reduction in the debit balance is a forex realisation event 4. Forex realisation event 1 will still apply to any disposal of foreign currency that occurs by making the deposit (e.g. the fact that the rent deposited this month is worth more of less in AU$s than the same amount (in NZ$s) deposited last month)
- a gain or loss under the CGT provisions resulting from the taxpayer withdrawing an amount from an account with a credit balance, to the extent that gain or loss is attributable to fluctuations in exchange rates (the fact that NZ$10,000 may be worth more or less (in AU$) this year than last because of exchange rate changes)

I think once you have done this election (assuming the account is below the $250,000 limit or the $500,000 temporary limit) then all you have to do is work out the profit (in the foreign currency) and declare it as an income. I did see once how you calculate the exchange rate for this but it’s hidden somewhere else.

As you suggested I don't think a lot of tax accountants understand what is going on - I recently had to step in to stop mine paying too much.

Remember the election does not get sent to the ATO so it could be done (unofficially and quietly) in retrospect.

Regards
Alistair
PS: Not related to your post but I must make clear that this piece of legislation does not absolve anyone from being taxed on a gain made when they actually exchange foreign currency (e.g. £s) into AU$s – that is a Forex Event 1.
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Old Apr 3rd 2005, 11:35 am
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Default Re: Capital Gains Tax

Originally Posted by Kiwipaul
Since June 03 all transactions abroard have to be converted to oz dollars on the day they occur using the exchange rate for that day.

I have an investment property in NZ which has about 100 transactions throughout the year (Rent, mortage, rates, expenses, etc) and the Oz tax office want me to work all these transactions in Oz dollars using the exchange rate for the particular day.

This is totally beyond my ability to work out 100 different transactions using 100 different exchange rates and getting a meaningfull result. So I just work it out in NZ$ and use the end of year exchange rate to convert to Oz dollars.

I've told them that if they want to do it their way I'll supply the details in NZ$ and they supply the results. The tax consultant I spoke to admitted that it was a new regulation and their were a few anomalies that should get ironed out over time. It also took the tax office ages to find someone who had even a modicum of knowledge of this subject.

No one from the tax office has ever asked me for any details of my investment transactions, they just accept what I put on the tax return.
Hi Paul,

The exchange rate to use was on that page. It is the average exchange rate for the third month before the start of the income year.

Regards
Alistair
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Old Apr 3rd 2005, 2:00 pm
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Default Re: Capital Gains Tax

Originally Posted by Kiwipaul
Since June 03 all transactions abroard have to be converted to oz dollars on the day they occur using the exchange rate for that day.

I have an investment property in NZ which has about 100 transactions throughout the year (Rent, mortage, rates, expenses, etc) and the Oz tax office want me to work all these transactions in Oz dollars using the exchange rate for the particular day.

This is totally beyond my ability to work out 100 different transactions using 100 different exchange rates and getting a meaningfull result. So I just work it out in NZ$ and use the end of year exchange rate to convert to Oz dollars.

I've told them that if they want to do it their way I'll supply the details in NZ$ and they supply the results. The tax consultant I spoke to admitted that it was a new regulation and their were a few anomalies that should get ironed out over time. It also took the tax office ages to find someone who had even a modicum of knowledge of this subject.

No one from the tax office has ever asked me for any details of my investment transactions, they just accept what I put on the tax return.

As far as income tax is concerned, these particular rules are intended to apply to large corporations, to my knowledge.

Capital gains tax may always have been different.

In the area of tax, a little knowledge is highly dangerous. Get professional advice unless the sums concerned are minimal.


Jeremy
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Old Apr 3rd 2005, 7:59 pm
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Default Re: Capital Gains Tax

Thanks for pointing me in the right direction.


Originally Posted by JAJ
This shows why an online forum is the last place you should be looking for tax advice - there are too many urban myths floating around.

There is a '6 month rule' that affects *some* pension transfers, not other assets.

There is a possibility of an exposure to Australian capital gains tax, but the place to look up the facts is http://www.ato.gov.au

Jeremy
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Old Apr 4th 2005, 12:05 am
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Default Re: Capital Gains Tax

Originally Posted by kirsty&al
Hi Paul,

You may be doing it right (if you have done the $250,000 balance election - re http://www.ato.gov.au/large/content....tent/34043.htm).
I know about this declaration but I haven't made it. At the mo the tax office has no idea where my money is as they don't ask for these details on foreign investments, so why should I make it easy for them.
As you suggested I don't think a lot of tax accountants understand what is going on - I recently had to step in to stop mine paying too much.
This wasn't a tax accountant it was the specialist at the Australian tax office who was struggleing to undersand the rules.
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Old Apr 4th 2005, 12:13 am
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Default Re: Capital Gains Tax

Originally Posted by JAJ
In the area of tax, a little knowledge is highly dangerous. Get professional advice unless the sums concerned are minimal.

Jeremy
These sums are not only minimal but negative as I've yet to make profit on the house from the income (in NZ$) that is not even using my depreciation allowance and as interest rates are 9% in NZ now I think I'm safe for a couple of years. Even then I've built up a fair ammount of losses in previous years to cover me for any possible rent income gain in the future.

Sitting on a nice fat Capital gain though which I'll have to pay tax on (To Oz taxman not NZ as no CGT in NZ) when I sell.
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Old Apr 4th 2005, 12:25 am
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Default Re: Capital Gains Tax

Originally Posted by Kiwipaul
Sitting on a nice fat Capital gain though which I'll have to pay tax on (To Oz taxman not NZ as no CGT in NZ) when I sell.
What happens if you return to NZ, as a NZ tax resident, in the year you sell it ? (what made the thought "can of worms" come into my mind here)
 
Old Apr 4th 2005, 12:39 am
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Default Re: Capital Gains Tax

Originally Posted by ABCDiamond
What happens if you return to NZ, as a NZ tax resident, in the year you sell it ? (what made the thought "can of worms" come into my mind here)
As regards to NZ tax nothing to pay.

BUT
When I leave Oz even if I don't sell my NZ house I'll be liable for the gain I've made on the house whilst in Oz and have to pay this to the Oz taxman when I leave.

Their was one escape clause I found if I'd stayed in Oz for less than 5 years and owned the house prior to arriveing (I did) and it had no connection with Oz (it dosn't) I could make a declaration regading the investment and have to pay no CGT.

BUT
If I ever return to Oz to stay they would then want CGT on the gain on the house from my origional arrival to the time I sold even if it was years after I left Oz (the first time).

The only time this would be useful was if you hated Oz and had no intention of returning then you could avoid all CGT on any foreign investment owned before you arrive so long as you stayed less than 5 years.
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Old Apr 4th 2005, 3:37 am
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Default Re: Capital Gains Tax

Originally Posted by Kiwipaul
I know about this declaration but I haven't made it. At the mo the tax office has no idea where my money is as they don't ask for these details on foreign investments, so why should I make it easy for them.

....
Making the election doesn't make it easy for them as it is something that you keep in your tax file. The only time they see it is if they investigate. Making the election would not change the current information the ATO has on you, it would just backup the calculations you described earlier, if they came looking.

A.
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