CGT Non Resident with Australian Shares and Property

Question

This is continuing from our emails & is related the previous question CGT Start Date on Inherited property.
Question is, what are my Capital Gain ramifications and if I am not entitled to the 50% CGT discount plus the tax free component how long would I need to return and live in Australia for those entitlements to be reinstated.

  • Shares purchased in February 2015 and August 2016
  • I moved to Thailand in May 2019 (Retired)
  • When I left Australia I did not pay CGT on the gain on those shares
  • I still own a property in Perth which I have been renting out but am now in the process of selling. Because of rental on the property I have been paying tax on the full income received on this property ( I’m trying to say “ I have not received the tax free component on this income”)

Would you like me to send you a copy of my last tax return?

Answer

Forget the shares this property is your biggest concern. If it was covered by your main residence exemption previously if you sell while you are a resident overseas you will lose all that main residence exemption right back to the day you purchased the property. So I am going to continue here on the basis you are coming home though I expect there will be further conversation after you digest this.

Is it possible that you have only lodged your 2020 tax return as a non resident? If so maybe we can amend it to a resident after all the ATO tends to try and hold onto taxpayers until they have been away for more than two years. If you are a resident you will get to use the franking credits to pay the tax on your dividends and of course the tax free threshold. What sort of income do you have in Thailand? Where is your family? What did you say when you left the country on the form you complete at the airport?

Additional Information Supplied

You responded to a question about the CGT for the property from me back on 26/7/20. The property was purchased by my mother and left to me in her will. So I think we have those concerns covered.

Forgive me but I sometimes get confused with some terminology. So I hope I am giving you the correct answers to your questions.

In regards to tax returns:

  • 2020/2021 I paid tax on the full amount of income received from the property rental
  • 2019/2020 I paid tax on the full amount of income received from the property rental. See attachment
  • I would only consider returning to Australia for a period of time if it was going to make a significant change to my taxation bill. I know we should not talk “potential” when it comes to profits from the share market but these shares do have the “potential “ to generate a tax bill of $100,000 and up.
  • I have no income in Thailand and am living on an income stream from my superannuation.
  • Only family I have in Australia are one brother and one sister.
  • I am supporting my girlfriend (she is Thai) and her daughter.

Ok so you have never lived in the property. That isn’t quite so bad but still no 50% CGT discount for the time you were a non resident. Coming home won’t make any difference to that, other than if you were a resident for tax purposes at the time you sell you would at least get that tax free threshold to help with the CGT. I assume from your last question to me you fully understand how your mother’s house is treated for tax purposes and from what you say below you fully understand the effect of no tax free threshold. But did I mention in your last question about how you can contribute to superannuation and claim a tax deduction as a non resident? This may help.

It sounds like your strongest family ties are in Thailand so if you want to become an Australian tax resident again you should really bring them with you.

Now to your question:

Section 104-165(2) gives you the option of ignoring the capital gain accrued on the shares when you leave the country but this will effectively mean you are taxed on any gain while you are a non resident. The options are:

a) Defer the CGT and pay it when the asset is sold but the tax will be on the gain over the whole period up to the sale including when a non resident. There will be no carve out for any gains while you were a non resident and no 50% CGT discount for that period either.

or

b) Pay the CGT when you leave the country ie 2019 tax return and Australia no longer has any rights to any further capital growth. BTW as a non resident Australia has no right to tax your dividend income.

So the choice is pay the tax when you leave and be free of Australian tax on any gain you make while a non resident or defer the tax but widen the period of time you are exposed to Australian capital gains tax. Did your Accountant not explain this when you left? Is it possible your 2019 tax return did include any capital gain at that time? If not is it too late to go back and amend it to include the gain? You get two years after the date of the assessment notice.

Let’s say $100,000 gain on the shares and you owned them for 10 years the first 4 as a resident and the last 6 as a non resident. You will be entitled to a 20% CGT discount on the gain that is 40% of the 50% discount because 40% of the time you were a resident. Again coming back home will not change the loss of the discount for the years you were away but will allow you the tax free threshold to help absorb the gain.

The good thing about shares is you can sell them off a bit at a time. It would be worth making some enquiries about how much you can contribute to super and claim a tax deduction for. You probably have a cap saved up from the 2020 and 2021 financial years ie $50,000 before you even start to use up this years cap of $27,500. The idea would be to wait until you have sold the house and put a full $77,500 into super to offset as much of the capital gain that you can on that. Then with careful planning you could remain a non resident but carefully sell the shares down putting 80% of the capital gain into super. Up to $27,500 each year, so you might take 3 years to sell down the shares after the year you sell the house. But do the house first so you can use up all that saved cap because you can’t just sell off part of the house like you can the shares.

The money you put into super can be claimed as a tax which it sounds like you are old enough to draw straight out again anyway. Claim the contribution as a tax deduction will mean it is only taxed at 15% going into the super fund. You cannot open a new super fund while you are a non resident but it sounds like you already have one that you can contribute to.

It is a shame you have not been using this strategy on the rental income to date. Would have more than halved that tax bill.

. .
Have a question about tax you need answered?

. Ask your own tax question here for only $79.95