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Unwanted tax outcome for Australian Expatriates returning to Australia

Posted on September 24, 2014

Are you a long-term Australian expatriate holding properties in Australia?
You will have an unwelcome surprise when you return to Australia if you sell the relevant property after resuming Australian residency.

Many long-term Australian expatriates are unaware of the new capital gain tax rules applicable to non-residents holding assets that are classified as taxable Australian property (TAP).
These rules came into effect on 8th May 2012 to remove the 50% CGT discount for foreign and temporary residents.

TAP include:
P  taxable Australian real property;
P  indirect Australian real property interest;
P  an asset used in carrying on a business through permanent establishment in Australia;
P  options and rights to acquire the assets listed above; and
P  a CGT asset covered by a CGT event that arises where a person ceases being a resident and elects to defer their CGT liability.

Australian expats returning to Australia will be partly denied the CGT discount  even if they sell the relevant property after resuming Australian residency.

The discount percentage calculation is based on the acquisition date of the CGT asset and the residency status of the individual.
The CGT discount is adjusted down to reflect the proportion of the discount testing period that the individual was an Australian resident.

If the property was acquired on or before 8th May 2012 and the individual was a non-resident, the calculation of the discount reduction will depend on whether market value choice is made at the time of leaving the country and how the property market performed until the property was sold or the expatriate returned back to Australia.

If no market value choice was made, the discount is apportioned for the number of days of Australian tax residency after 8th May 2012.

In many cases the effect of not choosing the market value method is that the CGT discount may not be available for gains accrued prior to 8 May 2012.

It is important therefore to start planning now for your return and consider obtaining market valuations of any TAP you own to ensure you can maximise the CGT discount on future discount capital gains, even if you don’t expect to return to Australia for some time.

If you consider living abroad, you should also be aware of the impact of the new measures as they may affect your decision to cease being an Australian resident.

Proper tax planning will reduce your exposure to tax!

At HCG we always address cross-border tax issues with our clients, help them document and support their residency status and put strategies on place to reduce the tax outcome.
If you have any questions, we are just a phone call away.

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