Can income loss offset capital gain?

Dear All,

I am an Aussie expat living overseas (for more than 10 years now).

I am considering purchasing an investment property in Oz using a bank loan where the interest payment will be more than the anticipated rental income (funded by my overseas income) which will result in a net "income loss" each year.

My question is, in a scenario where I eventually return to Oz and say my accumulated income loss will be $200K, when I sell my property for a capital gain of 400K, then can I offset my accumulated income loss against the capital gain in that financial year?

Thank you in advance!

Stephen

 

Hi Stephen, same situation as you.
I sold one IP in 2017, and managed to offset the capital gain against that financial year's income loss.

 

It will depend. You would have a carried forward loss, so an injection of a capital gain while this loss is there will mean CGT can be offset.

But if you have say a $50,000 income loss and earn $50,000 in the first year back they loss will be used up.

 

Thank you, Axely & Terry for your quick response! Appreciated and understood.

I am purchasing a waterfront for my eventual retirement, while I do have other IPs, this one will likely be my PPOR when I return (geez.. probably another 25+ years), so I won't have any salary income then, but will sell one of my IPs to fund a lifestyle. So based on your advice, I think the answer is positive that I will be able offset carried forward loss against that CGT.

Cheers!

 

Hi Stephen, just to clarify -- my IPs had "net income loss" each year since 2011. However, in the year 2017 September when I sold one of the IPs, the capital gain was offset only against the income loss for the financial year 2017-2018. My accountant had advised that I couldn't factor in those accumulated income loss for the years 2011 to mid 2017.

 

Thanks for the clarification, AxeLy. Given income tax losses can be accrued, what's the reason for not being able to factor in the carried forward losses? did your accountant state reasons? I wonder what the tax rule says.
Perhaps @Terry_w would also be able to advise?

 

Hi Stephen, according to my accountant, income tax losses cannot be accrued.
I ended up paying substantial capital gain tax on the IP sale, but that's the way things were.

 

Not sure what you mean here, but a loss from this year can be carried forward to next year to offset next year's income.

 

I am not advising anyone of these forums so get your own tax advice, but I know of no reason why a loss from this year could not offset a capital gain from next year.

 

See this from the ATO
Losses

 

The above quoted "Losses" link was modified in year 2015.
My IP sale took place in Sep 2017, and my accountant had advised that only capital losses could be accumulated, but not the yearly income losses.

A simplified Example :
Net income loss in 2011 = $10k,
Net income loss in 2012 = $10k
Net income loss in 2013 = $10k
Net income loss in 2014 = $10k
Net income loss in 2015 = $10k
Net income loss in 2016 = $10k
Net income loss in 2017 [ending 30-June-2017] = $5k

Net income loss from 01-July-2017 to 30-June-2018 = $10k
Net capital gain from sale of IP = $200k

==> Net Taxable income for the financial year 2017-2018 = $190k [$200k less $10k]
I am an Aussie expat living overseas so I was classified under foreign resident thus having to pay tax from the first $1.

My accountant did not include the accumulated $65k net losses from years 2011 to mid 2017 in the calculation of my 2017-2018 taxable income.

Gee. I had paid lots of capital gain tax on that sale. Let me re-submit my documents and seek a second opinion from another professional on this matter.

@007forever Stephen, overseas Aussies like us are classified under a different tax bracket. Please seek professional advice before you commit to purchase/sale. I thought I did... but I'd double check again. Cheers.

 

Yes get a second opinion.

There may be something regarding being a non-resident that I don't know or something in your situation that we are missing.

 

Nope. Income Loss was from IP's rental income less IP expenses.
Most of my IPs are old houses on big lands. Every year there would be one or two which requires higher repairs/maintenance costs. Every year was a net income loss.

 

Sounds odd to me too.

 

Nev

No. Never. Personal tax advice when tax outcomes benefit should otherwise consider your position.

 

Thanks everyone for your further input. I am also seeking advice from an accountant. @AxeLy let us know what you find out as well. Cheers!