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6 year rule (50% discount) when changing status to be non resident

Discussion in 'Accounting & Tax' started by Abooking, 24th Sep, 2015.

  1. Abooking

    Abooking Well-Known Member

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    nsw
    Gday

    I'm recently deemed to be a non resident for tax purposes on this years tax return. My accountant is kind of junior / nearly qualified CPA but wanted to clarify on this forum if possible a few small issues.

    I purchased the house in 2002 and didn't move into the house at settlement. I was abroad and rented it out right away. Around 2004 (or 2006) I stayed in the house for a month doing renos and around 2012 I lived in the house for a year. However at this time I put some family in my PPOR and they paid me rent. On my tax return for that year to make things easier I declared that income against the Investment property. Since Ive been abroad in 2012 Ive rented it out again via an agent.

    Thus, its now time to change my tax status to be that of a non resident on this return the accountant is preparing right now.

    My accountant has told me that I will not have to pay capital gains tax if I satisfy the 6 yr rule and if I moved into the house right away at settlement. I evidently didnt move right in....

    My main question is...
    1. I lie and say that I did move into the house back in 2002 at settlement, will the ATO have records from 13 yrs ago. I have since destroyed all records for that year but know that I would have had a full 12 months rent at the house declared on that tax return. Will the ATO keep records to then and look at them in 5 to 10 yrs time.

    _____________________________________
    Another thing my accountant said was:

    ''Sorry I missed the exception of real property so no there is no option to deem disposal of your rental at this time.
    For capital gains tax (CGT) purposes, you are deemed to have disposed of your assets (other than Australian real property and some business assets) for their market value when you became a non-resident for tax purposes and a capital gain or loss may arise. From that time onwards, these assets no longer fall within the Australian CGT net.''

    I asked an aussie friend about this and he said:

    ''the highlighted bit means that you are not deemed to have disposed of the house on becoming a non resident. As there is apparently no deemed disposal on becoming a non resident and no actual disposal, you don't have to make any decision regarding the CGT implications of selling the house at this stage.

    Also - as an aside - she appears to be off track in mentioning that you won't be able to claim the 50% reduction when you sell the property as you have become a non resident. I should check this but it seems that this change in the law only applies to assets acquired on or after 9/5/12 whereas you acquired the house long before this.''

    Question 2.
    Based on my situation do I satisfy the requirements to get the 50% discount based on my circumstances? I'm vague about what are the requirements for this rule but thought that the main one was that I must hold it for more than a year.

    3. Is the 6 yr rule linked to the 50% discount?

    ________________________
    The original email from the accountant that confused me was....

    ''
    For your information please see below on capital gains tax on your rental property and how your residency status effects this. We are electing to disregard the capital gain so we can use the 6 year rule as mentioned previously. I just wanted to check that you moved into your rental as soon as you purchased it (and not rented it out)?

    Capital gains tax on assets
    Where your client has changed from residency or temporary resident status to non-resident status.

    For capital gains tax (CGT) purposes, you are deemed to have disposed of your assets (other than Australian real property and some business assets) for their market value when you became a non-resident for tax purposes and a capital gain or loss may arise. From that time onwards, these assets no longer fall within the Australian CGT net.

    However, you can elect to disregard the capital gain or loss made at this time. If the choice is made, the asset is taken to be ‘taxable Australian property’ after residency ceases, meaning that it will remain within the Australian CGT net. If the election is made, any capital appreciations (or reductions) from the time residency ceases are taken into account in working out the capital gain or loss when the asset is eventually sold. This is in addition to any capital appreciations (or reductions) during the period of Australian residency. However, please note that from 9 May 2012 onwards the 50% CGT discount is not generally available to non-residents or temporary residents. This may impact on the amount of Australian tax you have to pay on eventual sale of the asset.''

    question 4. In light of the above, does this apply to me?

    thanks in advance if your able to comment on any or all of this....
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1 yes
    2 partially
    3 no
    4 no
     
  3. Abooking

    Abooking Well-Known Member

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    Thanks for the reply. I would love to know why n.o 2 was answered 'partially'
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Yeah - The % proportioning rule applies to the CGT calc and so some (to answer your question) will be taxable and subject to a 50% exemption + the 6 year rule isn't technically available.

    Tip - You should get a formal valuation as of 12 May 2012 or the earlier date in 2012 when you occupied the home as this may protect some of the CGT discount up to that point. (The 2012 budget change allows this !!) Yes you may also have a exempt period after you occupied it. That will just affect the taxable / exempt % of days.

    I would never recommend that you lie and claim to have moved in when first acquired. Your own tax returns lodged previously contradict this as a start. The ATO retain record of all returns and don't discard any data. The front cover of your returns would indicate your address. Rental schedules would also show income and the answer to the Q : "How many weeks was property rented". The penalty for a false statement in a return or confirmed on audit is significant and even a potential crime. (And you know the ATO can see your earlier post on this public forum and issue a Notice to Sim to produce your identity - I doubt it but they can)

    The 12 May 2012 valuation rule applies to all taxable CGT assets acquired before that time. Assets acquired after that time are always unable to access the 50% CGT discount for any period of non-residency.
     
  5. Abooking

    Abooking Well-Known Member

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    Thanks Paul, Thats good of you to provide a detailed answer. many thanks
     
  6. melbournian

    melbournian Well-Known Member

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    Since u have declared the property's rental income. Even if u had moved in a couple of months after settlement it would have been less of an issue now. Just do an honest or reasonable calculation or documentation on those dates from rental and moved in date etc.

    It is impossible to run from the ATO they can grab bank transfers, utility bills etc and other movement going back further 10 years. I did get audited before although got out clean but wasn't pretty