Tax questions around recent property sale

Hi Folks,

I have sold my overseas property investment and my 1st PPOR last financial year. Now, I am doing tax return. Seeking comments from experts in this forum

1) I sold an overseas property investment at loss. This investment was partially funded from my personal employment income in Australia and partially from my personal employment income in US. The property itself is in a 3rd country where I have paid required tax. Can I get tax benefit from the investment loss in Australia? ( I am Australian citizen and was Australian resident for tax purpose when I brought and when I sold it)

2) I also sold my 1st PPOR in Greater Sydney region.

- Brought in Dec 2010 for $317K as first home buyer. Left PPOR / Australia in 2015 and came back in 2017. The property has been tenanted since May 2015.

- Sold in April 2021 for $540K (so within 6 years rule). CGT liability after selling expenses and CGT discount will be (510k-317k) / 2 = 96K * 0.45 = 43K.

- I also brought my 2nd and new PPOR in Dec 2018 for $1.85m and current market value is $2.3 mil. So if I sell in 3 years from now - CGT liability after selling expenses and CGT discount will be ($2.5 mil - $1.85k) / 2 =325K * 0.45 = $146K.

Based on these calculations, I am thinking that I will not claim CGT benefit for PPOR # 1 (and pay 43K) , so I dont have pay CGT for PPOR # 2 (saving me $146k). Is there a smarter way to do this and save more tax for e.g

1) add interest payments and property maintenance cost to $317k . So it will become 510-400 instead of 510-317k for CGT calculations

2) Pay CGT for only price change from May 2015 (day when property was tenanted first) to April 2021 (sale date) so may be ($510k-$400k) / 2 = 45*0.45 = 20K (assuming $400K price in May 2015)

3) Reset PPOR # 2 cost base to market value as of April 2021 ($2.2) instead original purchase price of $1.825. Then I have to pay CGT for increase from $1.85 to $2.2 (78k)?

The property is on my personal name. I am in highest tax bracket.

Thanks in advance.

 

are you a tax resident for the relevant financial year?

 

Yes. I am tax resident for FY21 - when these properties were sold.

 

If you didn’t have another PPOR then you could still claim the first and get main residence exemption til the date you acquired the second

As on the first house the cost base is reset at the time it first earns money the rates and interest etc before that date is irrelevant

The interest etc you have paid since the house was first rented can’t be added to your cost base as it would have been claimed as deductions

I assume you were not partnered during this time with anyone who had a main residence also

 

It sounds like you are about to make a very costly mistake. Why not get some paid tax advice?

 

That'd cost money

 

Thanks. That would translate to below

“Pay CGT for only price change from May 2015 (day when property was tenanted first) to April 2021 (sale date) so may be ($510k-$400k) / 2 = 45*0.45 = 20K (assuming $400K price in May 2015)” .

How can I get valuations done for May 2015 now ?

If I go this path and pay the CGT for first property, In future , when I sell my new PPOR , cost base for that would be purchase price at the time of acquisition (Dec 2018, while I still had 1st PPOR but now tenanted) or market value as of April 2021 (when I sold the 1st PROR)?

I don’t want to pay CGT on second property between Dec 2018 and April 2021, as the price has appreciated substantially.

Thanks for your responses so far !

 

Engage a registered valuer.

Who will contribute? Start a go fund me campaign or get paid advice as per others - it's outside the realms of an internet forum/personal tax advice or try whirlpool.

 

Thanks, I will get a registered valuer for 1st PPOR. Happy to pay CGT for 1st PPOR ($20k) but want to avoid paying CGT for new PPOR for period between Dec 2018 and April 2021 (when I had both properties but 1st PPOR tenanted) as CGT amount will be very high.

 

If you moved into it as soon as you purchased it (& a number of other suppositions), then it may be exempt or partially exempt.

 

Yes. I did moved into new PPOR as soon as I purchased it and I have no other property investment. (Other than 1st PPOR , for which I will pay CGT)

 

Or it may also be exempt if you get advice, saving another $20k+

 

This is a certain example of where personal tax advice will save mistakes and potentially avoid one of two issues
1. Under estimation of actual tax
2. Over estimation of actual tax

Which will it be ?

I dont want to pay CGT...is not a tax plan. Its a wish. Tax advice identifies the options and the ways to limit tax and my aim is $0 if its possible but if its not then as close to $0 as laws allow. Advice should consider property dates and use and even third element costs, valuation dates and strategies and what adds to the costbase and what may even redcuce it and so on. None of those who posted above are a tax adviser giving you advice based on all the facts and while their infomation is helpful and accurate it is also partial.

1. The costbase of the foreign property is probably not what you think it is. Its AUD value of the date you commenced AU tax residency is its potential costbase and its AUD value when sold is its proceeds. The foreign tax may be creditable IN PART against the AU calculated gain if there is one. Foreign property can also be treated under the former main residence absence rule. The loss if it is one may be eligible to offset other CGT gains or carried forward or may be exempt. I often see people with foreign property losses that when exchange rates are imposed are also gains in Australia.

2. The absence from Australian between 2015 and 2017 doesnt sound like it is a end to tax residency to me.

Just some of the issues I see,.....