How To Pay Zero Tax On Sale Of Overseas Home
Have you migrated to Australia from countries like India, South Africa, UK and still own your overseas home? If that’s you or someone you know, then read on as it may save thousands in tax. You might learn how to avoid capital gains tax on overseas property too.
ATO taxes Australian citizens and permanent residents on their world income, including any payment from the sale of your overseas house.
Another issue you face is double taxation, first in your native country and then in Australia. Both countries will tax the same transaction as per their tax laws, though ATO will allow you to offset the foreign tax to soften the blow.
Please make no mistake; when you sell your overseas home and bring the money to Australia, ATO will track it and ask questions. And if your native country happens to have a financial system like India, they will not let you repatriate the funds unless you have paid their taxes.
So there is no way to hide.
Still thinking about how to avoid capital gains tax on overseas property sales?
The good news is that with proactive planning, we can help eliminate the tax in Australia or, at the very least, reduce it in many cases. Below case study illustrates some strategies you can use but consult an experienced accountant to get the best result.
Kumar is a mining engineer and arrived in Perth on November 30, 2016, on a 457 visa sponsored by Rio Tinto. His family soon joins him, and he rents his flat in New Delhi. On January 26, 2021, Kumar became a permanent resident. Below are some scenario options Kumar can consider if he wishes to sell his Delhi flat and buy a home in Perth.
Scenario 1: Sell the Delhi flat before January 26, 2021
No Capital Gain Tax in Australia as Kumar sells his Delhi flat before becoming a permanent resident. During his work visa phase, he will be a temporary tax resident and not liable for tax in Australia on overseas income. So he will only have to pay taxes in India.
Scenario 2: Sell the Delhi Flat before November 29, 2022
Yes, your principal residence exemption still applies to your overseas residence. Kumar can use the 6-year absence rule, which means that for Australian tax, his Delhi flat can be considered his primary residence up to November 29, 2022. So no capital gain in Australia.
Scenario 3: Sell the Delhi flat anytime after November 30, 2021
Kumar can use the market value of the Delhi flat on January 26, 2021 ( the day he got PR) as the cost for calculating the Australian Capital Gain. The market value of the Delhi apartment on November 30, 2022, is likely to be significantly higher than the actual purchase price. The market value substitution rule will help Kumar reduce or eliminate his capital gain in Australia.
Insights on How to Avoid Capital Gains Tax on Overseas Property Sales
The lay in this area is complex, and much will also depend on your personal goals and situation. The message of the above scenarios is to take advice proactively and plan for a tax strategy for the sale of your overseas home, and don’t leave it to chance.
At Nav Accountants, we offer professional tax advice on how to avoid capital gains tax on overseas property sales and can help by offering you a consultation today!
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