We moved to Australia in 1996 and would have continued to do so today but my elderly mother-in-law required looking after and we went back to New Zealand in 2007.
During those 11 years in Australia we bought approximately $100,000 of shares (under my wife’s name) and now these shares are worth around $190,000.
As we are now retired we have to think about selling these shares and as such have some questions concerning the Australian capital gains tax that may be incurred when we sell.
1/ My first questions relates to what happens if we sell the shares while still living in NZ…..
*New Zealand has no capital gains tax but I believe we still have to pay CGT to the ATO if we sell these shares – is this correct?
*If the above is correct, what CGT discount percentage (if any) would we be entitled to as non-residents?
*One or two of these shares will incur a capital loss when sold; can we use these capital losses against any capital gains we have made?
2/ As my mother-in-law passed away some years ago we are weighing up our options with one of these being lucky enough to move back to Australia to try again.
*Looking at moving to Australia, what benefits would there be in regards to minimising CGT paid (when selling our shares) as Australian residents? e.g. would we immediately qualify for the maximum 50% discount for individuals in selling our shares or would we have to reside in Australia for a minimum period before we can get the maximum discount? What are the rules regarding this.
*Being able to claim our Australian shares’ franking credit against any capital gains would be another benefit to moving back.
Any other comments to minimise CGT paid for our circumstances gratefully accepted.
I am assuming when you came to Australia there was no need for a 444 visa. That is you simply became a resident for tax purposes, not a temporary resident.
If, when you left Australia you didn’t pay tax on the notional gain on the shares you held then Australia continues to have a right to tax the capital gain made while you are a non-resident for tax purposes. Did you pay CGT when you left? It is such a shame if you didn’t. Another example of laws intended to tax people by trickery unless they can afford professional advice on every move they make.
If you sell while still in NZ then you will be taxed as a non-resident which means a minimum tax rate of 32.5%. You would have to come back to Australia, give up your home in NZ and properly set up a home here, not to be classed as a non-resident. Also be here for at least 6 months preferably 2 years.
To add further insult to injury you are only entitled to the 50% CGT discount up to 8th May 2012. This apportionment is calculated by working out what percentage of the total days you owned the shares, the period from purchase to 8th May is. You then multiply the capital gain by this percentage and halve it then add that to the rest of the gain on the shares. If you come back to Australia as a resident the days from when you came back will be added to the days that you are entitled to the 50% discount but it won’t fix anything for the period you were a non-resident.
The capital loss on some shares is allowed to offset the capital gain on other shares sold in the year or future years. Though you don’t get to choose which year, the loss must be offset against the first gain that comes along though if there is more than one gain in the same year you can choose which gain to offset against. As this loss is offset before the 50% discount is applied it is worth choosing whenever possible to offset the loss against a parcel that does not qualify for much of the 50% CGT discount. For example a parcel you purchased just before leaving. So the plan would be to make sure you sell that parcel in the same year you sell the ones that made a loss.
Even if you are back in Australia as a resident when you sell the shares, that period from 8th May 2012 till when you become a tax resident again still does not qualify for the 50% CGT discount.
At the risk of confusing you, here is a link to an ATO worksheet but I can’t believe how complicated they made a simple concept sound. https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/GEN35657.pdf
Regarding franking credits. Our double tax agreement gives the country of residency the right to tax the dividends on shares. This means that while ever you are a non-resident of Australia for tax purposes the dividend and franking credit will not be included in your Australian tax return. When you become a resident again it is only the franking credits received going forward that will be refunded.
Other ideas – If you are under 65 or can somehow pass the work test consider making a super contribution to offset the capital gain effectively reducing the tax rate to 15%. Non-residents are still allowed to make deductible superannuation contributions if they have an Australian super account, they just can’t open an Australian super account while a non-resident.