Australian - (Property) - Capital Gains Tax Changes for Foreign Residents

[jack2964]

1 minute ago, moojar said:

^ As a "foreigner" Jack, do you still get a deduction for your costs like loan interest and agents fees etc.?  Or is it a straight '$30k in rent = $10k-ish in tax'?

Yes I do. Stuff like bank interest, agent's commissions, repairs, council rates, insurance etc. Where it hurts most is when I sell the property. I will be slugged 45% on CGT on every dollar in excess of 180k. Having said that, I of course still come out ahead.

[4MyEgo]

On 27/09/2017 at 5:26 PM, jack2964 said:

Yes I do. Stuff like bank interest, agent's commissions, repairs, council rates, insurance etc. Where it hurts most is when I sell the property. I will be slugged 45% on CGT on every dollar in excess of 180k. Having said that, I of course still come out ahead.

Hey Jack, I originally posted this topic and just read what your saying which I think you may of misunderstood what someone advised you previously or have been advised wrongly regarding capital gains tax ?

 

Firstly, let me say I am not an accountant, my background was property over the past 25 years, having retired early as a senior property valuer without limitations in NSW, with my work being mainly high end property in the eastern, south-eastern suburbs of Sydney, suffice to say I am going to throw something at you, (could work out to be GOLD).

 

I was also a property investor starting back in 1984 where the real money was and a small scale developer, so consider myself to be an almost know it all when it comes to this kind of stuff, also having to be up to speed on tax laws, and had extensively researching things for about 5 years before I left to live here, as it was going to affect me as a non resident, now living here almost 2 years, and have set myself up brilliantly back in Oz and paying zero tax from income earned through shares.

 

The rent you pay as a non resident is 32.5c in every dollar up to $80,000, after that it increase to 37.0c in every $ up to X amount, and then it jumps to 45c in every dollar thereafter, I am little rusty as I was not fortunate enough to earn over $80,000 in rents having sold what property I had left back in Oz and wasn't going to pay that kind of tax to feed the politicians and half of the scammers on CentreLink.

 

The capital gains tax component is a separate matter to the rental you receive, that is, normally speaking (current legislation).

 

As far as I am aware, you are subject to capital gains from the date you leave Australia as a foreign resident.

 

However, if you purchased a property before 8 May 2012, as an investment property and rented it out from day one, you will receive the 50% CGT discount, that is,up to the 8th of May 2012 and were a foreign resident at that time, see copy and pasted note below:

 

 CGT discount for foreign resident individuals. Up to 8 May 2012, the CGT discount of 50% was available to foreign resident individuals who were subject to CGT on taxable Australian property. ... The discount is apportioned where a CGT event happens after 8 May 2012 and: you acquired the asset before that date.

 

From my understanding, what that is saying is that you require a valuation as at 8 May 2012 (talk to an accountant please) because this might save you some serious crust, i.e. establishing the market value of the property as at 8 May 2012, for the capital gains tax side of things and obtaining the 50% capital gains tax discount up to that date, i.e. 8 May 2012.

 

I recall doing heaps of valuations over the years for people living overseas up to the 8th May 2012, in other words, providing them with a high value to minimise their future capital gains tax.

 

Now legislation change all the time, so I don't know if this still applies, but would give it a go, because if its still in, then you just won the lottery so to speak ? 

 

After 8 May 2012 not sure what happens, it could be that you would be up for full capital gains tax, but if you have a high end valuation on your place to 8 May 2012, it will help minimise the tax, "better something than nothing".

 

So from my understanding in layman's terms, you will require a valuation as at 8 May 2012 to determine the value of the property as at that date, and receive the 50% discount up to that date, after that, I think your burnt toast, 100% capital gains tax, i.e. from 8 May 2012 to current date, like I said, I am not an accountant, but put down here what I know, or thing I know and if it sounds correct or could be a way out, then its up to you to do the rest, after all its about saving yourself future tax $ as opposed to it going to the filthy politicians and CentreLink scammers.

 

If what I am saying stacks up, and your property is in Sydney, I have more good news for you, but you will have to PM me to discuss how we are going to get you a high end valuation as at 8 May 2012, but that is "up to you" as the Thai's say 555

 

Please do let us know if I am talking through my rear or I am worth charging to put stuff like this on TVF for Ozzie Xpats 555  

[jack2964]

My rental property is a modest duplex taking in less than 30k a year in rents so I am on 32.5%.

 

I'm not sure what you mean by the CGT being a separate component to rents received. If I don't sell I won't have to deal with CGT but say I sell today then on my next tax filing I will need to total up rents received up to today and whatever my actual capital gains is minus costs. This total sum would then be my income for the financial year and it will be well in excess of 180k. For the first 180k, tax is 63k which works out to 35%. Every subsequent dollar above 180k 45 cents is grabbed by the ATO. 

This has gotten me thinking is it really worthwhile holding on for more capital growth considering it has appreciated heaps over the last 3 or 4 years. At my age (60s) there aren't many good years ahead so I ought to cash in and enjoy the fruits of my labour.

I'll send you a PM when I get back to my PC.

[4MyEgo]

11 hours ago, jack2964 said:

My rental property is a modest duplex taking in less than 30k a year in rents so I am on 32.5%.

 

I'm not sure what you mean by the CGT being a separate component to rents received. If I don't sell I won't have to deal with CGT but say I sell today then on my next tax filing I will need to total up rents received up to today and whatever my actual capital gains is minus costs. This total sum would then be my income for the financial year and it will be well in excess of 180k. For the first 180k, tax is 63k which works out to 35%. Every subsequent dollar above 180k 45 cents is grabbed by the ATO. 

This has gotten me thinking is it really worthwhile holding on for more capital growth considering it has appreciated heaps over the last 3 or 4 years. At my age (60s) there aren't many good years ahead so I ought to cash in and enjoy the fruits of my labour.

I'll send you a PM when I get back to my PC.

I misread your post Jack2964, I thought you were referring to the capital gains tax to be paid would be 45c in every dollar above $180k (being the value of the property when you left).

 

Your right about paying 45c in every dollar above $180k in income derived, which sucks badly, scale attached for other: https://www.ato.gov.au/Rates/Individual-income-tax-rates/?page=1#Foreign_residents

 

There could be some other scenario's which you could look at, never leave any stone unturned, i.e.

 

Did you ever reside in the property or was it always an investment property (apportionment)?

 

Have you thought of reducing your income in the financial year you are looking at selling your property, i.e. when your close to retiring. Now depending if your an employee and depending on your employer, i.e. if its an overseas company, they might not be subject to the same laws as Australian companies, i.e. Mr employer, can you hold paying me this years full wages, until the next financial year to reduce my income for the financial year, or get paid half to live off, therefore reducing your income in the the financial year you sell the property, say an income down to 32.5c in every dollar, would be better than 45c in every dollar in capial gains tax.

 

My income was close to yours back in Aus, i.e $170k, however I was in a fortunate enough position to plan my departure and reduce it to $77k prior to leaving Sydney, however my structure would have been different to yours, i.e. I was an Australian resident at the time, and as my structure was also that of a company, I paid my wife a salary just under the threshold of $18,200 so as to reduce my income further, and her not having to declare her income for tax purposes, then I received the pro-rata threshold as an individual when departing, i.e. I got 5 months worth of the $18,200 threshold which reduced my income even further.

https://www.ato.gov.au/individuals/ind/tax-free-threshold-if-you-are-leaving-australia-with-the-intention-to-reside-overseas/

 

It might even be worth it for you to return to Australia for however months it would take to re-establish your residency for tax purposes, then leave, keep looking for scenario's: 

 

Also look out for the upcoming 12.5% foreign investor tax, as it is more than likely to effect you: https://www.domain.com.au/news/australian-expats-caught-up-in-federal-governments-foreign-investor-rule-changes-20170605-gwkw1h/

 

Best start your planning, because time flies, either way, if you require a retrospective property valuation in New South Wales for capital gains tax purposes, just PM me, and we can go from there.

 

Edited September 30, 2017 by 4MyEgo

[4MyEgo]

38 minutes ago, 4MyEgo said:

I misread your post Jack2964, I thought you were referring to the capital gains tax to be paid would be 45c in every dollar above $180k (being the value of the property when you left).

 

Your right about paying 45c in every dollar above $180k in income derived, which sucks badly, scale attached for other: https://www.ato.gov.au/Rates/Individual-income-tax-rates/?page=1#Foreign_residents

 

There could be some other scenario's which you could look at, never leave any stone unturned, i.e.

 

Did you ever reside in the property or was it always an investment property (apportionment)?

 

Have you thought of reducing your income in the financial year you are looking at selling your property, i.e. when your close to retiring. Now depending if your an employee and depending on your employer, i.e. if its an overseas company, they might not be subject to the same laws as Australian companies, i.e. Mr employer, can you hold paying me this years full wages, until the next financial year to reduce my income for the financial year, or get paid half to live off, therefore reducing your income in the the financial year you sell the property, say an income down to 32.5c in every dollar, would be better than 45c in every dollar in capial gains tax.

 

My income was close to yours back in Aus, i.e $170k, however I was in a fortunate enough position to plan my departure and reduce it to $77k prior to leaving Sydney, however my structure would have been different to yours, i.e. I was an Australian resident at the time, and as my structure was also that of a company, I paid my wife a salary just under the threshold of $18,200 so as to reduce my income further, and her not having to declare her income for tax purposes, then I received the pro-rata threshold as an individual when departing, i.e. I got 5 months worth of the $18,200 threshold which reduced my income even further.

https://www.ato.gov.au/individuals/ind/tax-free-threshold-if-you-are-leaving-australia-with-the-intention-to-reside-overseas/

 

It might even be worth it for you to return to Australia for however months it would take to re-establish your residency for tax purposes, then leave, keep looking for scenario's: 

 

Also look out for the upcoming 12.5% foreign investor tax, as it is more than likely to effect you: https://www.domain.com.au/news/australian-expats-caught-up-in-federal-governments-foreign-investor-rule-changes-20170605-gwkw1h/

 

https://www.domain.com.au/news/foreign-until-proven-otherwise-subtle-2017-budget-change-affects-thousands-of-sellers-20170531-gwgwlp/

 

Best start your planning, because time fly's, either way, if you require a retrospective property valuation in New South Wales for capital gains tax purposes, just PM me, and we can go from there.

 

 

Edited September 30, 2017 by 4MyEgo

[MadMuhammad]

18 hours ago, 4MyEgo said:

Hey Jack, I originally posted this topic and just read what your saying which I think you may of misunderstood what someone advised you previously or have been advised wrongly regarding capital gains tax ?

 

Firstly, let me say I am not an accountant, my background was property over the past 25 years, having retired early as a senior property valuer without limitations in NSW, with my work being mainly high end property in the eastern, south-eastern suburbs of Sydney, suffice to say I am going to throw something at you, (could work out to be GOLD).

 

I was also a property investor starting back in 1984 where the real money was and a small scale developer, so consider myself to be an almost know it all when it comes to this kind of stuff, also having to be up to speed on tax laws, and had extensively researching things for about 5 years before I left to live here, as it was going to affect me as a non resident, now living here almost 2 years, and have set myself up brilliantly back in Oz and paying zero tax from income earned through shares.

 

The rent you pay as a non resident is 32.5c in every dollar up to $80,000, after that it increase to 37.0c in every $ up to X amount, and then it jumps to 45c in every dollar thereafter, I am little rusty as I was not fortunate enough to earn over $80,000 in rents having sold what property I had left back in Oz and wasn't going to pay that kind of tax to feed the politicians and half of the scammers on CentreLink.

 

The capital gains tax component is a separate matter to the rental you receive, that is, normally speaking (current legislation).

 

As far as I am aware, you are subject to capital gains from the date you leave Australia as a foreign resident.

 

However, if you purchased a property before 8 May 2012, as an investment property and rented it out from day one, you will receive the 50% CGT discount, that is,up to the 8th of May 2012 and were a foreign resident at that time, see copy and pasted note below:

 

 CGT discount for foreign resident individuals. Up to 8 May 2012, the CGT discount of 50% was available to foreign resident individuals who were subject to CGT on taxable Australian property. ... The discount is apportioned where a CGT event happens after 8 May 2012 and: you acquired the asset before that date.

 

From my understanding, what that is saying is that you require a valuation as at 8 May 2012 (talk to an accountant please) because this might save you some serious crust, i.e. establishing the market value of the property as at 8 May 2012, for the capital gains tax side of things and obtaining the 50% capital gains tax discount up to that date, i.e. 8 May 2012.

 

I recall doing heaps of valuations over the years for people living overseas up to the 8th May 2012, in other words, providing them with a high value to minimise their future capital gains tax.

 

Now legislation change all the time, so I don't know if this still applies, but would give it a go, because if its still in, then you just won the lottery so to speak ? 

 

After 8 May 2012 not sure what happens, it could be that you would be up for full capital gains tax, but if you have a high end valuation on your place to 8 May 2012, it will help minimise the tax, "better something than nothing".

 

So from my understanding in layman's terms, you will require a valuation as at 8 May 2012 to determine the value of the property as at that date, and receive the 50% discount up to that date, after that, I think your burnt toast, 100% capital gains tax, i.e. from 8 May 2012 to current date, like I said, I am not an accountant, but put down here what I know, or thing I know and if it sounds correct or could be a way out, then its up to you to do the rest, after all its about saving yourself future tax $ as opposed to it going to the filthy politicians and CentreLink scammers.

 

If what I am saying stacks up, and your property is in Sydney, I have more good news for you, but you will have to PM me to discuss how we are going to get you a high end valuation as at 8 May 2012, but that is "up to you" as the Thai's say 555

 

Please do let us know if I am talking through my rear or I am worth charging to put stuff like this on TVF for Ozzie Xpats 555  

N absolute wealth of information! 

[BaanOz]

On 24/09/2017 at 3:20 PM, 4MyEgo said:

Better of putting your money in share, no tax if they are fully franked and no capital gains tax for foreign residents, at least you will be making a coin from dividends while your capital fluctuates, hopefully in the upward direction mostly 555

Wondering, if a company announces a drop in their franking, do you sell up straight away to avoid paying tax and lodging a tax return?

[4MyEgo]

15 hours ago, BaanOz said:

Wondering, if a company announces a drop in their franking, do you sell up straight away to avoid paying tax and lodging a tax return?

 

Good question, personally, I would sell, providing it wasn't at a loss, because my lazy tells me no more paperwork, the 90 day reporting single sheet of A4 paper is enough 555

[4MyEgo]

On 19/09/2017 at 4:17 PM, maoro2013 said:

Well typical

 Australians cannot plan for their retirement easily. The rules keep changing, superannuation  and now this one. The sole and principle residence has always been exempt, up to a certain value as was Capital Gains Tax. If you are a non resident, for tax purposes, it may be tricky as the residence may not be your sole and principle residence. You need a tax adviser on this as whether the residence was you sole or principle residence 'IN AUSTRALIA'. 

 

If you are an Australian Resident for tax purposes and reach the age of 65 they are looking at, i.e. not sure if its passed through parliament yet, allowing you to put $300,000 of the sale proceeds of your principal place of residence, into superannuation tax free from my reading of the article, however is conditional, i.e. must have lived in the property for 10 years, and it must have been your principal place of residence: https://www.ato.gov.au/General/New-legislation/In-detail/Super/Contributing-the-proceeds-of-downsizing-to-superannuation/

 

Around the same time, i.e. 30 June 2019, they are looking at dropping the CGT discount of 50%, so anyone holding onto their principal place of residence after that date will also cop another finger up the a..

 

https://www.pwc.com/gx/en/services/people-organisation/publications/assets/pwc-australia-capital-gains-tax-changes-for-foreign-residents.pdf?WT.i_asset_id=TX.IA.NL.GM-CAP GAINS_07FY17~amp~WT.mc_id=5188~amp~WT.i_dcsvid=PETER.CLARKE%40US.PWC.COM

 

I have only more or less found out about the superannuation tax free part, so one would have to confirm this through their own research or accountants, suffice to say, I personally wouldn't want to be holding property in Australia after that date.

 

Happy reading...

[moojar]

I think you're right about the tax free to super thing - it was in the budget.  Commentators more or less said it ain't gonna help (with the housing crisis), as the costs of selling the family home then buying a smaller place makes it barely worthwhile, and any extra in super would affect many people's pension anyway.  Might be useful to anyone who has no intention of returning to Oz though.

 

The reduction in the CGT discount is as far as I know just ALP policy at this stage.  The LNP are resisting mightily.  But with the social-media-savvy younger generations screaming loudly about the baby boomer overlords making a motza out of property investment, at the expense of those younger generations, it's only a matter of time before the LNP caves.  Labor are well ahead in the polls, the Libs are an infighting rabble, and there's an election due by late 2019.  

 

Election might be a lot sooner if the high court decision re dual national MPs doesn't go the govt's way.  They only have a one-seat majority...  The LNP laughed long and loud - and were all preachy about it - when a couple of Greens senators got caught out and resigned honourably, now they're all indignant when some of their own have been outed.  Interesting times.  

[4MyEgo]

2 hours ago, 4MyEgo said:

If you are a Non Resident for tax purposes and reach the age of 65 they are looking at, i.e. not sure if its passed through parliament yet, allowing you to put $300,000 of the sale proceeds of your principal place of residence, into superannuation tax free from my reading of the article, however is conditional, i.e. must have lived in the property for 10 years, and it must have been your principal place of residence: https://www.ato.gov.au/General/New-legislation/In-detail/Super/Contributing-the-proceeds-of-downsizing-to-superannuation/

 

Around the same time, i.e. 30 June 2019, they are looking at dropping the CGT discount of 50%, so anyone holding onto their principal place of residence after that date will also cop another finger up the a..

 

https://www.pwc.com/gx/en/services/people-organisation/publications/assets/pwc-australia-capital-gains-tax-changes-for-foreign-residents.pdf?WT.i_asset_id=TX.IA.NL.GM-CAP GAINS_07FY17~amp~WT.mc_id=5188~amp~WT.i_dcsvid=PETER.CLARKE%40US.PWC.COM

 

I have only more or less found out about the superannuation tax free part, so one would have to confirm this through their own research or accountants, suffice to say, I personally wouldn't want to be holding property in Australia after that date.

 

Happy reading...

 

[4MyEgo]

1 hour ago, moojar said:

I think you're right about the tax free to super thing - it was in the budget.  Commentators more or less said it ain't gonna help (with the housing crisis), as the costs of selling the family home then buying a smaller place makes it barely worthwhile, and any extra in super would affect many people's pension anyway.  Might be useful to anyone who has no intention of returning to Oz though.

 

The reduction in the CGT discount is as far as I know just ALP policy at this stage.  The LNP are resisting mightily.  But with the social-media-savvy younger generations screaming loudly about the baby boomer overlords making a motza out of property investment, at the expense of those younger generations, it's only a matter of time before the LNP caves.  Labor are well ahead in the polls, the Libs are an infighting rabble, and there's an election due by late 2019.  

 

Election might be a lot sooner if the high court decision re dual national MPs doesn't go the govt's way.  They only have a one-seat majority...  The LNP laughed long and loud - and were all preachy about it - when a couple of Greens senators got caught out and resigned honourably, now they're all indignant when some of their own have been outed.  Interesting times.  

 

Thanks for that, I just noticed an error in my post, i.e. I put Australian Resident at the beginning instead of Non Resident, meaning that is you are a Non Resident, and had lived in your principal place of residence for 10 years, you can put $300,000 of the sale proceeds into superannuation to reduce your CGT, providing you are also 65 years of age: 

 

"The home sold must have been owned by the individual for the past ten or more years and have been the principal residence of the individual".

 

As for purchasing another property, well...I don't know if a caravan constitutes "property"