Tax Q&A: Your Tax Questions On Capital Gains And More
Q: I am a foreigner and I purchased a two-bedroom apartment in 2007 as a residence for my children, who are pursuing their tertiary education in Sydney. The apartment has never been used to produce income or been available or advertised for rent. The apartment is still being financed by a mortgage loan.
I am planning on selling it as my four children are graduating, and would like to know if I am eligible for any of the CGT exemptions or concessions? Also, if I am not eligible for any CGT exemption or concession, would the interest on the mortgage payment be deductible against the CGT?
A: From a property/real estate perspective, the 50% capital gains tax discount was previously available to any individual who had a taxable capital gain on the disposal of a property that had been held for more than 12 months, irrespective of their tax residency status. This meant that only 50% of the capital gain was included in their assessable income.
However, in the 2013 Federal Budget, the government announced that the 50% CGT discount would no longer be available to non-residents effective 7.30pm (AEST) on 8 May 2012. The CGT discount would remain available for capital gains accrued prior to this date if a market valuation of the property as at 8 May 2012 was obtained.
Therefore, as you acquired your property before 8 May 2012, your options are as follows:
• If an independent market value of the property as at 8 May 2012 is obtained, a CGT discount of up to 50% will be available, depending on whether the gain accrued up to 8 May 2012 is higher or lower than the overall capital gain. If the capital gain accrued up to 8 May 2012 is more than the overall capital gain (which means the property has declined in value after 8 May 2012), the full 50% CGT discount can be applied to the overall capital gain.
If the overall capital gain is more than the capital gain up to 8 May 2012 (which means the property has increased in value after 8 May 2012), then the full 50% CGT discount will only apply to the capital gain up to 8 May 2012. Any increase in value of the property related to the period after 8 May 2012 will not be subject to any discount if you remain as a non-resident during this period.
• Non-residents who do not obtain a market valuation of the property will not be eligible for any CGT discount on any capital gain before 9 May 2012. Therefore you will be taxed on the full capital gain upon disposal of the property if you remain a non-resident of Australia for income tax purposes throughout the ownership period.
Please note that if the property is held in a company, then there is no entitlement to the 50% CGT discount, regardless of your residency status or when you purchased the property (except if the property was purchased before 20 September 1985, in which case it would be entirely CGT exempt).
In relation to the interest expense on the mortgage, yes, you will be entitled to claim this expense as an addition to the capital cost base of the property as well as other outgoings which relate to the property, such as land tax, council rates, repairs and maintenance, etc.
– Angelo Panagopoulos
For full article please click on the link below: