Does the “Australian Investment Fund” tax apply on property bought overseas? (I’m thinking of looking further into buying in NZ)
I knows property is not a “fund” but thought it worth checking as the ACT does mention “trusts”.
Law details: http://www.ato.gov.au/individuals/content.asp?doc=/content/8887.htm
Thanks in advance,
Chiz
Suggest reading this guide on the treasury site for more info on fifs/cfc's if you need it.http://www.treasury.gov.au/documents/881/PDF/RITA_Glossary.pdf
The goal of the FIF/CFC regime is to assess Aust resient taxpayers accumulating significant offshore passive income which could otherwise be deferred. Under FIF, you would be taxable on the increase in the value of the assets which means you could be paying Australian tax on unrealised foreign capital gains, but the FIF rules arent relevant for foreign real estate investments or foreign bank accounts. It would not be practical to obtain a valuation each 30 June to meet oz tax requirements!
As an Aussie investing o/s, any net income or loss on your o/s rental property operations will flow through to your Aust tax return, where you'll be assessed at marginal rates (just like with an Aust rental property). Losses on foreign income USED to need to be quarantined into different classes (interest, modified passive, other etc) but this is no longer required from July 09 onwards. Just telling you in case you have been exposed to outdated info, or have leftover losses from prior yrs.
You need to convert the foreign income into AUD. The rate to convert depends on what you do with it. If you keep the money in NZ (and let it biuld up in a property mgrs trust acc or your own NZ bank account), the exchange rate is as at year end. If you bring it back, the rate is at the time of bringing the funds in. Cap gains on foreign assets are assessable the same way that oz ones are, and cap losses are quaranted.
You may also get taxed on the income by the NZ authorities. To avoid double taxation though, any o/s tax paid can be used as a credit against oz income.
Hope this helps.
Josh
Thanks Josh,
Lots of useful information there. The most useful thing you’ve told me is that although NZ does not have CGT, you still pay CGT to Australian government (tax systems always get you in the end
). But even worse, if you make a loss (cash flow negative) the loss is quarantined so you can’t claim it here in Australia!Hmmm.
Do you know this from experience (got overseas properties?) or are you in legal / accounts / tax ?
Thanks again.
Chiz
Just to clarify my point, I dont know what the non-resident rules are for NZ around CGT but im pretty sure their tax law operates the same as ours. Your right though – either way you'll get stung eventually. If you dont pay tax on foreign investment disposals in oz and are an Australian resident (for tax purposes) you are breaching the tax law! Suggest getting advice from an NZ acountant if you own property there. In oz, dont forget about the CGT discount which is available to individuals, trusts and superfunds. This is available after youve held the asset for 12 mths.Losses on the operations of your foreign investment are not quarantined. They can be deducted against any other australian income (eg salary etc) from July 09 onwards. Foreign capital losses, like oz cap losses ARE quarantined to be used only against future Capital gains you might earn.
Let me know if you have any further questions.
Cheers
Joshps fyi, i own a few rental properties in New York state, but am also an Aust Chartered Accountant.
). But even worse, if you make a loss (cash flow negative) the loss is quarantined so you can’t claim it here in Australia!You must be logged in to reply to this topic. If you don't have an account, you can register here.
