Sell Home in Australia CGT Considerations for Australian Citizens Living in New Zealand
Table of Contents
Introduction
If you are an Australian citizen living and working in New Zealand, and you are considering selling your house in NZ and moving back to Australia, it is important to understand the tax implications, specifically regarding Capital Gains Tax (CGT). This article aims to provide you with insights into CGT payment requirements and how to minimize or avoid them.
Australian Residency and CGT
As Australian citizens, when you bought the house in New Zealand and were residing there, you were considered non-residents of Australia for tax purposes. However, when you return to Australia, you will once again become Australian residents for tax purposes. This change in residency status has implications for CGT.
Becoming an Australian Resident for Tax Purposes
When you arrive in Australia, you immediately become a resident for tax purposes. As a result, Australia becomes entitled to tax your worldwide income, including capital gains on foreign assets. The good news is that the cost base of your foreign assets, such as your house in New Zealand, is determined by its market value at the date you became an Australian tax resident.
Timing of Selling the House and CGT
If you decide to sell your house in New Zealand while you or your partner is in the process of moving back to Australia and earning a salary there, you may wonder if you will need to pay full CGT. The answer depends on the timing of the sale and the duration of your Australian residency.
Selling within a Year of Arrival
If you sell the house within a year of arriving in Australia, it is unlikely that you will make a capital gain. This is because the cost base of your foreign assets is reset to the market value when you became an Australian resident. When you factor in the selling costs, the likelihood of a capital gain diminishes.
Selling More than 12 Months after Arrival
If you decide to sell the house more than 12 months after arriving in Australia, and there is a capital gain, you will be entitled to the 50% CGT discount. This discount applies if you meet the requirement of selling the property more than 12 months after becoming an Australian resident for tax purposes.
Main Residence Exemption and CGT
Another consideration to minimize or avoid CGT is through the use of the main residence exemption. If you have not purchased a house in Australia that you want to cover with your main residence exemption, you can cover your house in New Zealand with it instead.
Section 118-145 of 1997 ITAA
Under section 118-145 of the 1997 Income Tax Assessment Act, you can claim your main residence exemption for up to 6 years if your house in New Zealand is earning income. If the house is not earning income, the main residence exemption can be claimed indefinitely.
Potential Tax Trap
It is important to note that the potential tax trap lies in a different scenario. If you decide to move back to New Zealand and have made a capital gain on your Australian house, ensure that you sell it before you leave. If you move back to New Zealand and then sell your Australian house, you will lose your main residence exemption from the time you purchased the Australian property.
Conclusion
In conclusion, as Australian citizens living in New Zealand, you have relatively little to worry about regarding CGT when selling your house in NZ and moving back to Australia. The tax implications are more favorable in this direction. However, if you decide to move back to New Zealand after owning a house in Australia, it is crucial to sell the Australian property before you leave to avoid losing your main residence exemption.
