Selling NZ Property - CGT question

Hi everyone,

Found this forum after googling the question so hopefully someone can help me here.

Have a home in NZ that my partner and I bought in late 2007 as our PPOR. Lived in it for just under 5 years before moving to Melbourne in April 2012. Been renting in Melbourne since then.

We are looking to prepare to buy something in Melbourne to live in, but want to sell the NZ place first. Doing some research it looks like we're potentially up to pay CGT if we sold, at least from the value of when we left in 2012. My question is - provided we sold before April 2018, given this property was our PPOR until April 2012, could we not use the 6 year absence rule to be exempt from CGT?
I'm Australian born if that matters at all, and my partner is from NZ.

 

No. You cant use a period when you were not an Australian tax resident to claim exemption from a tax that arises due to Australian residency. You would have to have a period of exemption for the main residence exemption that occurs after you become a tax resident and thats somewhat problematic if you reside here as a fact.

The first element to the puzzle is to determine your tax residency. Assuming you became an AU tax resident in 2012 a CGT event occurred that made the NZ property a CGT asset. Market value at that date is relevant (in AU terms). Then any sale now would give rise to a taxable CGT event based on the AU value of the property when sold adjusted for CGT costs that may be relevant such as selling costs, improvements since 2012 etc.

AU and NZ have a close data sharing arrangement on NZ property sales by AU tax resident and many people are being caught.

 

Thank you for your reply Paul. So, from a tax status perspective I will be a resident from April 2012 onwards, so I would need to work out the value for that period and CGT would be payable (less improvements etc) on the current sale price.
Not the news I was hoping for!

 

Hi Wally

I would be talking to your accountant about it.
You need to look at 118-45 and then TD 95/7
From what you have described you should be able to claim the 6 year absence rule.
Maybe @Paul@PFI can clarify further

 

Yes, Thats relevant if existing laws remain in effect. The Govt has a proposed law change which would strip that retrospectively. I agree I should have said that. I was jumping ahead of myself !!

If existing tax laws are in place when the property is sold and proposed laws arent retrospective the MRE could be used provided the actual AU residence is also never also exempt for that same period. You should determine the choice that provides the most benefit - Its not always the first sold property. For example iof the realised NZ gain after allowing for exchange rate movts was $2k it may be a better choice to elect that the MRE doesnt apply to NZ.

You may not know the answer for some time I regret.

 

Thanks. I'll speak to my accountant about it.

 

@wallysimmonds - Isn't NZ property subject to NZ tax law? Is there CGT in NZ? In either case the sale would be subject to NZ tax law and no additional tax payable in Oz.

 

You pay CGT to the Aussie tax man if you're a resident here.

 

Yes NZ tax law but also Australian tax law if owners tax residents here.

 

If you are highly taxed at source then when you lodge in AU it could mean a refund.
If you are not taxed at source (ie a NZ CGT issues as NZ has no CGT) then you will have tax to pay.

This assumes a double tax treaty. Note it says double tax....The effect of the agreement can mean what is not taxable at source (NZ CGT $0) becomes taxed on residency (AU CGT) . The treaty does address what happens if BOTH want to tax....The intent is to ensure income isnt taxed twice BUT it isnt perfect sometimes BOTH will tax the income and one will give a credit for the other tax paid.

In this case as there is $0 CGT paid in NZ the Australian CGT is full and final.