NKSK

Will probably sell our UK house 2 years after arrival in Australia. Until then we will rent in Australia. Do we pay any tax when we eventually bring the cash over?

The excerpt below is taken from: www.gomatilda.com/news/article.cfm?articleid=327



4. David has retained a property in the UK on which he has a mortgage and which he has rented out to tenants. The balance on his loan on the date he moved to Australia several years ago was £60,000, when the exchange rate was £1 = A$2.45 => the equivalent value of the loan on the date of his arrival was A$147,000.

After a number of years renting a property in Australia David decides that he will sell his property in the UK as he has decided to buy his first home in his adopted country. He therefore sells his UK property and redeems the loan on completion of the sale, on which date the exchange rate is £1 = A$2.60 => the A$ equivalent of the loan when it is redeemed is A$156,000.

David hopes that this “loss� of A$9,000 can be claimed as a deduction against his income for the year in which he sold his UK property. Unfortunately this isn’t possible as the mortgage loan was taken out before 1 July 2003 and David hasn’t made the necessary election under section 775-150.

Note that any gain arising on the disposal of David’s property may be outside the charge to capital gains tax if David can rely on the exemption from CGT that is available where a taxpayer derives income from a former main residence for a period of up to 6 years, so long as there is no other dwelling that is occupied as the taxpayer’s main residence.


The claiming of a loss doesn't concern me but the bit in bold does.

Does this mean that there is no tax payable on the sale of a main residence in the UK if it takes place within 6 years of migration? Is a rented house in Australia classed as a second residence? Tax experts?!

markeh

Hiya
I think you answered your own question, if you rent it you don't own it.
Ergo you still only have one residence you won and are entitled to CGT on it.
You could always own the 2nd property in your wife's name.

Bye
Mark

NKSK

Thanks Mark. I like your logic!
Do you know how this sits with the 'if you transfer within 6 months it's tax free' adage (i.e, if you transfer after 6 months it's not tax free)?

chr1sarter

Had a quick search around for the answer as im also interested. I was led to believe that you had to trasnfer all funds from UK to Aus within a 6 months period, this inlcuding house sale, but i was not correct.

This thread will answer your question

http://britishexpats.com/forum/showt...tax+house+sale

Hope this helps

NKSK

Thanks for this - what a diamond ABC is!

Does anone know what the FX tax will be? e.g if the exchange rate is $2.40 when I move to Australia and two years later the rate is $2.60 then this equates to a difference of $20 000 (on £100 000 released by the UK house sale). How much of this $20 000 will I lose?

JAJ

I'm not sure if it's feasible to ask a forum like this to do personal tax computations. I'd look at the ATO rules on capital gains tax if I were you.

Jeremy

NKSK

It's not really a personal tax calculation I'm after (the £100 000 was hypothetical). I'd just like to know if there is a standard rate on FX tax - akin to income tax bands. Should be in the public domain somewhere!

Alan Collett

In short, you add together your assessable income (including capital gains) and it is taxed accordingly (ie after the first tax free slice - called the tax free threshold - the next slice is taxed at 17%, then 30%, etc). You can't therefore treat any one source of income as being taxed at a specific rate of income tax.

Have a look at www.ato.gov.au for details of the income tax rates and bandings of income to which these rates apply.

Best regards.

NKSK

Thanks - I wasn't sure that the tax on FX gains was classed within the 'income tax' catch-all. I thought that it was a stand alone tax on FX conversions - now I see why it is an individual matter.

JAJ

Alan will correct me if I'm wrong, but generally FX gains or losses are taxed within the capital gains tax system.

There are provisions within the income tax code for unrealised FX gains but these are intended for larger taxpayers (eg corporations or high net worth individuals).

Jeremy

NKSK

So - assuming that:

1. your main residence is in the UK, and
2. you're not liable for CGT on the sale of this (I think) within the first 6 years and,
3. gains on exchange rates come under the CGT umbrella,

does this mean that changes in the fx between my entry and the sale of my UK house would not be taxed?

Or have I missed something?

(Sorry to push this but there must be many people in the same boat!)

Kiwipaul

So long as you've actually lived in your house in the UK you can claim this house as your Principle place of residence and it's free of Oz CGT for 6 years even if you rent it out during these 6 years. Assumeing your renting in Oz.

If you sell it during these 6 years their will be no FX tax liability due to exchange rate movements except any gains or losses on the cash from the house sale whilst it sits in a bank waiting to be transferred.

So basically your gain is tax free (in Oz).

Alan Collett

Can I add that for certainty you should always obtain a Private Ruling from the Australian Taxation Office and/or a written opinion from a tax professional ... with large amounts of tax at stake a forum isn't the best medium for making key decisions.

Best regards.

Kiwipaul

Yes I got one of these monstrosities (Private Ruling from the Australian Taxation Office) when I wanted to know wether I should declare my income from my investment property in NZ as Gross or nett (after deductions for mortgage, expenses, etc) as I had been declareing just the nett in my yearly tax return.

About 2 weeks after I sent the request some taxman phoned me up and explained it in words I could understand and I duely changed my previous 2 tax returns.

2 weeks later another taxman phoned asking me a question about my request and I told him it had been sorted. He then told me he couldn't cancel my request unless I informed him in writing. So I told him to go ahead and sent me the ans. 1 month later I got a 6 page letter with so many ifs, ands and buts regarding various laws I was totally confused.

SO if you ever get one of these (Private Ruling from the Australian Taxation Office) you will have to contact someone like Alan to interpretate it for you.

Why a simple request as to do I need to declare it net or gross requires 6 pages of garbage beyond me.

kathmand194

Very interesting thread!!

I am hoping to immigrate out to Australia in the near future probably the next 2 years I am currently putting together my main visa application.
I hope to buy a property here in Northern Ireland (UK) in the next few months and live in it as my main residence, when I decide to move to Australia (Fingers crossed for visa) I intend to rent this property out until I find out if I am going to settle, and where.

Question 1 Can I rent this property out for up to 6 years and still avoid Capital Gains Tax when I finally decide I am ready to sell and transfer the money over to Australia??? And I can write the money made from the renting of this property of against the mortgage payments and only pay tax on any profit after paying the mortgage, rates etc????

Any knowledge of this would be grate,

Gary.