Hi

I'm looking at emigrating to Oz in the near future and I hold 10 investment properties in the UK.

Clearly if I sell my properties in the UK I will pay capital gains tax on the profit.

If I'm "Oz resident" for tax purposes, sell my investment properties and bring the profit into Oz will I create any tax liability or am I able to bring my assets to Oz free of tax?

Is the answer different if I sell them as soon as I'm resident in Oz verses waiting a few years and doing it then?

Hope someone with tax knowledge can throw some light on this.

Cheers

Hmmm ... sounds like there's a fair amount of tax at stake ... happy to advise more formally if you would like to complete the details here:
http://www.collettandco.com/contact.cfm
(excuse the picture!).

We can then confirm our fees for advising more formally.

In short though, you may have an opportunity to wash out significant capital gains from the charge to taxation.

Best regards.

Regarding your Oz tax liability, all your assets should be valued in Oz dollars on the date you become tax resident in Oz and this is the starting point for any potential Oz CGT liability.

What you payed for them and when is irrevelant to the Oz taxman, they are intrested in what they are worth when you become resident in oz.

This is the simple explanation but their could be other implication I don't know about (held in a company, trust, etc) but for an individual it is correct to the best of my knowledge.

Hi Kiwipaul

Many thanks for your reply.

So it sounds like the "profit" made by me so far in the UK would become irrelevant as the Oz taxman would value the asset at it's current market value on becoming tax resident in Oz and use this as the start point for any future capital gains.

Therefore if I sell them after say two years of being tax resident then the market value then would be compared to the market value when I became tax resident and a gain calculated and taxed.

Am I about right?

Cheers

Heath

quote:

Originally posted by heath:

Am I about right?

Yes

BUT this assumes you are not in the property buisness or a property speculator and you earn your income someother way.

If you live off these properties and buy and sell as your livehood different rules would apply. You would have to prove to the taxman that you made your living as say a doctor and your property investments were a side line.

Unless your situation was very clear cut I would suggest you take up Alans offer as I am an amatuer and I don't have anything like 10 properties but what I do have is not in Oz and so am familiar with the basic rules.

Hi Heath

I would definately recommend you contact Alan Collett.

I don't have the same number of properties as you but I do have a UK property and a UK business. The advice that he has provided to me has been very useful and could prove to save me a lot of tax. I had a basic idea of the rules but it was worth spending some money to get professional advice on what could have been an expensive tax bill!

Good luck

Shell

Thanks again for the responses.

I'm sure in time I will contact Alan as the potential tax implication will be important but until my family and I visit Perth in Nov and Dec and make the decision to migrate I won't spend the money!

Kiwipaul,

we do earn our income from the property market by buying derelict property and converting them to flats, remortgaging to get the profit out and then renting them out. So our only taxable income in the UK is the rental less the mortgage. The properties are registered in our personal names. So although it is our only income, in essense they are still personally owned assets rather then business owned so to speak. But certainly if we sold them in the Uk, there would be substantial tax to pay, ie sale price less actual cost to buy and convert.

Have you the knowledge to advise a little further or not?

Cheers

Heath

To the best of my knowledge you would have to value the properties on the date you become tax resident in Oz and that would be the base line for any potential CGT in Oz.

Also if you returned to UK permenently within 5 years of leaving the UK taxman would become intrested in any CG you realised whilst away.

Also in Oz they have the novel concept of houses depreciating in value for tax purposes. So if one of your houses was valued at $100,000 (the house NOT the land) dollars you could depreciate it by 2.5% (or more) per year. That is why investment properties are so popular here for high income earners.

But this is a highly specalised area and good advise is a good investment.

Negative gearing is also a big driver behind investment in real estate ... though that might disappear if Malcolm Turnbull (Federal Liberal backbencher - successful businessman - Peter Costello's arch enemy it seems to me) has his way ...

Best regards.

quote:

Originally posted by Kiwipaul:
<snip>

Also in Oz they have the novel concept of houses depreciating in value for tax purposes. So if one of your houses was valued at $100,000 (the house NOT the land) dollars you could depreciate it by 2.5% (or more) per year. That is why investment properties are so popular here for high income earners.

<snip>

Many thanks for all your help here.

Once a migration decision has been made I'm sure you'll be getting a call from me Alan to agree the finer points of all the possible tax savings.

Cheers

Heath

quote:

What you payed for them and when is irrevelant to the Oz taxman, they are intrested in what they are worth when you become resident in oz.

Kiwipal... your quote above
"What you payed for them and when is irrevelant to the Oz taxman, they are intrested in what they are worth when you become resident in oz."

How will you be informing the Oz taxman? are you interviewed about your assets when you arrive in Oz forthe first time, i.e. at the airport? or are these deatils you would advise about via your annual tax return?

Arriveing in Oz provideing you have the necassary funds is all customs is intrested in (not your net worth). I've been in Oz 6 years now and they don't know what my foreign investments are worth as I've not sold them yet. The only time you have to declare your foreign capital gain is when you sell it (provideing your income from the foreign investment dosn't exceed your costs of the foreign investment and then you only pay tax on the nett income). Like I said before it's a self assessment system here and you have to tell them about any capital gain you have made, they don't have any way of knowing what is happening with your investments abroard unless you tell them.

BUT if you get audited you MIGHT have to produce documentation about your foreign investments, but it's not happened to me yet.

What's been said about the market valuation for CGT purposes is correct.

One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.

Incidently - the ATO are now cross-matching land-title records in Australia - how long until this is global?

A quick note to say that this is why it can make sense to rearrange your borrowings (where possible) so that you are borrowing against a property in Australia to acquire the overseas income generating asset - the interest then becomes a general deduction, rather than being ring fenced within the computation of the overseas loss.

Best regards.

quote:

Originally posted by mark68:
<snip>
One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.

Don't think so Alan - the matching principle would prevent this - ie the interest deductions still have to be matched to the relevant income (foreign).

quote:

Originally posted by Alan Collett:
A quick note to say that this is why it can make sense to rearrange your borrowings (where possible) so that you are borrowing against a property in Australia to acquire the overseas income generating asset - the interest then becomes a general deduction, rather than being ring fenced within the computation of the overseas loss.

Best regards.

quote:

Originally posted by mark68:
<snip>
One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.

Then we'll have to agree to differ. My view is that the general deduction rules allow interest incurred for the purpose of acquiring an income generating asset to be claimed.

Best regards.

quote:

Originally posted by mark68:
Don't think so Alan - the matching principle would prevent this - ie the interest deductions still have to be matched to the relevant income (foreign).

quote:

Originally posted by Alan Collett:
A quick note to say that this is why it can make sense to rearrange your borrowings (where possible) so that you are borrowing against a property in Australia to acquire the overseas income generating asset - the interest then becomes a general deduction, rather than being ring fenced within the computation of the overseas loss.

Best regards.

quote:

Originally posted by mark68:
<snip>
One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.

Yes that is quite correct - however the borrowing has to be matched to the income. So if you borrow on an Australian property to acquire a foreign income producing asset - the interest deductions have to offset against the income from the foreign asset.

It is the same principle as with general deductions - either generate income or have an expectation of income.

quote:

Originally posted by Alan Collett:
Then we'll have to agree to differ. My view is that the general deduction rules allow interest incurred for the purpose of acquiring an income generating asset to be claimed.

Best regards.

quote:

Originally posted by mark68:
Don't think so Alan - the matching principle would prevent this - ie the interest deductions still have to be matched to the relevant income (foreign).

quote:

Originally posted by Alan Collett:
A quick note to say that this is why it can make sense to rearrange your borrowings (where possible) so that you are borrowing against a property in Australia to acquire the overseas income generating asset - the interest then becomes a general deduction, rather than being ring fenced within the computation of the overseas loss.

Best regards.

quote:

Originally posted by mark68:
<snip>
One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.

Mark,

I don't recognise the matching principle you mention.

As you know, section 8(1) discusses the requirements for a general deduction to be allowable. And as you say, there has to be a link or connection between the amount incurred and the production of assessable income, but (so far as I know) there's no mention of the need to match the expense with income.

Also, the rules on foreign income deductions were amended from 1 July 2001 such that debt deductions are now excluded => interest deductions are no longer included in the computation of quarantined losses and may (in my view) be claimed as a general deduction.

Best regards.

quote:

Originally posted by mark68:
Yes that is quite correct - however the borrowing has to be matched to the income. So if you borrow on an Australian property to acquire a foreign income producing asset - the interest deductions have to offset against the income from the foreign asset.

It is the same principle as with general deductions - either generate income or have an expectation of income.

quote:

Originally posted by Alan Collett:
Then we'll have to agree to differ. My view is that the general deduction rules allow interest incurred for the purpose of acquiring an income generating asset to be claimed.

Best regards.

quote:

Originally posted by mark68:
Don't think so Alan - the matching principle would prevent this - ie the interest deductions still have to be matched to the relevant income (foreign).

quote:

Originally posted by Alan Collett:
A quick note to say that this is why it can make sense to rearrange your borrowings (where possible) so that you are borrowing against a property in Australia to acquire the overseas income generating asset - the interest then becomes a general deduction, rather than being ring fenced within the computation of the overseas loss.

Best regards.

quote:

Originally posted by mark68:
<snip>
One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.

Yes that's quite correct, unless the thin capitalisation rules come into play and provided the net rental income (excluding interest) is positive.

quote:

Originally posted by Alan Collett:
Mark,

I don't recognise the matching principle you mention.

As you know, section 8(1) discusses the requirements for a general deduction to be allowable. And as you say, there has to be a link or connection between the amount incurred and the production of assessable income, but (so far as I know) there's no mention of the need to match the expense with income.

Also, the rules on foreign income deductions were amended from 1 July 2001 such that debt deductions are now excluded => interest deductions are no longer included in the computation of quarantined losses and may (in my view) be claimed as a general deduction.

Best regards.

quote:

Originally posted by mark68:
Yes that is quite correct - however the borrowing has to be matched to the income. So if you borrow on an Australian property to acquire a foreign income producing asset - the interest deductions have to offset against the income from the foreign asset.

It is the same principle as with general deductions - either generate income or have an expectation of income.

quote:

Originally posted by Alan Collett:
Then we'll have to agree to differ. My view is that the general deduction rules allow interest incurred for the purpose of acquiring an income generating asset to be claimed.

Best regards.

quote:

Originally posted by mark68:
Don't think so Alan - the matching principle would prevent this - ie the interest deductions still have to be matched to the relevant income (foreign).

quote:

Originally posted by Alan Collett:
A quick note to say that this is why it can make sense to rearrange your borrowings (where possible) so that you are borrowing against a property in Australia to acquire the overseas income generating asset - the interest then becomes a general deduction, rather than being ring fenced within the computation of the overseas loss.

Best regards.

quote:

Originally posted by mark68:
<snip>
One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.

Sounds like you have the same book in your office library as me!

Best regards.

quote:

Originally posted by mark68:
Yes that's quite correct, unless the thin capitalisation rules come into play and provided the net rental income (excluding interest) is positive.

quote:

Originally posted by Alan Collett:
Mark,

I don't recognise the matching principle you mention.

As you know, section 8(1) discusses the requirements for a general deduction to be allowable. And as you say, there has to be a link or connection between the amount incurred and the production of assessable income, but (so far as I know) there's no mention of the need to match the expense with income.

Also, the rules on foreign income deductions were amended from 1 July 2001 such that debt deductions are now excluded => interest deductions are no longer included in the computation of quarantined losses and may (in my view) be claimed as a general deduction.

Best regards.

quote:

Originally posted by mark68:
Yes that is quite correct - however the borrowing has to be matched to the income. So if you borrow on an Australian property to acquire a foreign income producing asset - the interest deductions have to offset against the income from the foreign asset.

It is the same principle as with general deductions - either generate income or have an expectation of income.

quote:

Originally posted by Alan Collett:
Then we'll have to agree to differ. My view is that the general deduction rules allow interest incurred for the purpose of acquiring an income generating asset to be claimed.

Best regards.

quote:

Originally posted by mark68:
Don't think so Alan - the matching principle would prevent this - ie the interest deductions still have to be matched to the relevant income (foreign).

quote:

Originally posted by Alan Collett:
A quick note to say that this is why it can make sense to rearrange your borrowings (where possible) so that you are borrowing against a property in Australia to acquire the overseas income generating asset - the interest then becomes a general deduction, rather than being ring fenced within the computation of the overseas loss.

Best regards.

quote:

Originally posted by mark68:
<snip>
One point of note though - any losses from foreign income can only be offset against other income of the same class> ie foreign income.

Negative gearing of the properties will only be uselful against your UK income - or will reduce income when a foreign gain is realised.

Drop me a line if you require advice.