Aussie Expat Investor and CGT on Sale of Family Farm to Brother

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I have a question regarding the tax implications and potential claims for owning an investment property in Australia while living and working overseas. I recently returned from living in NZ for three years, and might go back. I also, through that entire time, have had an investment property in Melbourne, Australia. I lodged a tax return in Australia each year but did not receive any negative gearing benefit from my property while I lived in NZ.

Although I paid tax in NZ, I didn’t receive any tax offset for holding my Australian property, but I know of Kiwis who own Australian properties and do receive the tax benefit – how does this work? I also have another question on living overseas and still receiving income from Australia. I also have shares in Australia and received a dividend while I lived in NZ. I now have to pay the withholding tax on the dividend – does the negative gearing on my property offset the withholding tax on the shares?

A. While you were living and working in New Zealand for the three years, for Australian income tax purposes you were deemed an Australian non-resident. As an Australian income tax non-resident, if your Australian investment property is negatively geared, you cannot offset this Australian tax loss against your overseas employment income. This loss is carried forward in Australia and may be available to use when (and if) you return to Australia and are assessed as an Australian resident for tax purposes. If your property is positively geared, then you will be assessed based on the ATO’s non-resident’s rates, which start from a marginal tax rate of 32.5%, with no tax-free threshold. As a non-resident for Australian income tax purposes, you will not be entitled to receive any negative gearing benefits from your Australian investment property.

Your New Zealand colleagues may be entitled to the negative gearing benefits due to their residency status, and although the short answer is that this may be possible, I would require more specific details in relation to their situation and circumstances in order to provide further specific advice in relation to this. In regard to your withholding tax from your Australian dividend income, the negative gearing on your property cannot offset the withholding tax on the shares.
– Angelo Panagopoulos

Q. I live in Wisconsin and have a brother living in Australia who is buying the family farm, which is also located in Australia. Both of my parents are still alive, but my parents had put the farm in all of the children’s names. I have six other brothers and sisters. My parents are selling the property to my brother for almost the same price it was at 25 years ago. Since there is no capital gain on the price of the farm, will I have to pay taxes on my portion that my brother sells to me?

A. Generally, with property there are no tax impacts until a disposal/sale/transfer happens and a ‘CGT event’ occurs. Capital gains are calculated as the difference between the sale price and the cost base. The cost base includes the purchase price, stamp duty, legal fees, and pest and building inspections. The cost base also includes the cost of repairs immediately after acquisition. With the farm having been transferred/sold to the children by the parents, they are now considered the owners of title – six siblings and yourself makes seven. I assume this is ref lected on the title deed. Where this is the situation, then if the parents ‘sell’ the property to one brother, I assume this is a private arrangement and technically the brother is buying out the other six siblings, including yourself. For CGT purposes any non-arm’s length transaction will be deemed to have been made at market value.

So, notwithstanding that a deal is being made at a price similar to 25 years before, the capital gain will be calculated on the basis of market value as determined by (preferably) a qualified valuer. Note that if the market value is the same as it was 25 years ago, then there should be no gain.

Cost base should be the market value on transfer to the children 25 years ago, while the sale price will be the market value now. The difference is the capital gain. As the property would have been owned for longer than 12 months, there is a 50% discount before the balance of the gain is assessed as income on the tax return of each owner.

From the date of the budget announcement on 8 May 2012, non-residents for tax purposes are no longer eligible for this concession. Where assets were owned prior to this date, there are complex transitional arrangements.
– Shukri Barbara

The tax experts
Shukri Barbara is a CPA, CTA and principal advisor at Property Tax Specialists, with over 30 years’ experience in public practice, specialising in property tax, ownership structures, asset protection, (legally) minimising tax, and cash flow analysis.

Angelo Panagopoulos is principal at Hamilton Reid Chartered Accountants, specialising in property and taxation, asset protection and ownership structures.

Disclaimer: The views provided are of a general nature only and should be considered as general education. Readers should not act on the information above without obtaining professional advice relevant to their circumstances. The article is intended as information only.


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