fbpx

Case Study: Capital Gain Implication for Overseas Investments*

One of our valuable clients approached us with a question regarding the capital gains tax implications of their parents selling an overseas investment property. The parents had only moved to Australia in recent years and they were uncertain as to what value of the property may be taxed within Australia.

In order to calculate the capital gain implication we had to establish the facts surrounding the circumstances of the parents.

As the parents had moved to Australia in recent years, Rubiix must first establish if the parents were to be considered Australian residents for tax purposes. This was done by asking a series of questions around their personal circumstances that the Australian Tax Office (ATO) considers when determining whether someone is a resident of Australia for tax purposes. It should be noted that the ATO does not consider any single factor to be a determination, but all behaviours taken in aggregate.

These factors include, but are not limited to:

  • Securing accommodation within Australia
  • The length of time intended to reside within Australia
  • Location of immediate family
  • Opening of an Australian bank account
  • Participation in local competitions or events
  • Joining local community groups, or volunteering locally
  • Changing to an Australian mobile phone plan
  • Transport of household effects to Australia

It was determined by Rubiix that on the balance of behaviours, it was likely the client’s parents would be treated as residents for tax purposes. Even if the parents left Australia long enough to trigger the non-resident provisions and then return to Australia, the ATO would take the view that the long term intention was to return to Australia, thereby remaining residents for the duration of an extended overseas trip.

The next step was to determine the cost base of the property. This was complex and is a much specialised area of tax law when in relation to a foreigner becoming an Australian resident. The elements of cost base of are made up of:

  • Money paid or property given for the asset
  • Incidental costs of acquiring the asset or that relate to the asset
  • Costs of owning the asset
  • Capital costs to increase or preserve the value of the asset, or to install or move it
  • Capital costs of preserving or defending your title or rights to the asset
  • Other market value considerations relating to migration to Australia

Once the cost base had been calculated, we then sought to calculate the anticipated net capital gain. This estimate was based on the likely proceeds of the sale. We were then able to ascertain the taxable amount of the sale, being the proceeds of sale less the cost base of the asset, less some other discount factors relating to the duration of ownership.

As a result of this exercise, we were able to advise the client of an estimated tax liability in order to prepare them for tax time, rather than experience ‘bill shock’ after the ATO’s assessment. There are many factors that could have changed this outcome, such as not being considered residents for tax purposes, cost base adjustments from actions taken over the life of the investment or receiving a different sale figure upon disposal of the asset.

If you need assistance with this or matters like it, please contact our office on (03) 9603 0066.

*Nb. This case study is based on one particular individual’s circumstance and should not be taken as advice or used for all clients or scenarios.

We Minimise Your Tax To Maximise Your Profit

Contact Rubiix and ask about our various business accounting services that will maximise your business profit!

Recent Blog Posts

Rubiix Breakdown: 2024 Federal Budget

by | Jun 6, 2024 | News | 0 Comments

If you missed it, the 2024 Federal Budget was announced on Tuesday 14 May 2024, with a heavy focus on cost-of-living including assisting States and Territories to build...

A cheerful barista handing a paper bag filled with baked goods to a customer in a cozy bakery, illustrating customer engagement strategies to increase foot traffic and customer satisfaction.

How to increase your customers

by | May 29, 2024 | News | 0 Comments

Blog Home How To Increase Your Customers Increase Your Customers: 2 Key Strategies for Business Growth Growing your business not only boosts your current cash flow but...

Launching New Products, Services or Business Ideas Into the Australian Markets

by | Apr 29, 2024 | News | 0 Comments

Blog Home Launching New Products, Services or Business Ideas Into the Australian Markets Navigating the growth of your business in Australia can indeed be a challenging...

Tax saving strategies

Top Tips For Tax Planning & Reduction

by | Apr 10, 2024 | News | 0 Comments

Blog Home Top Tips for Tax Planning & Reduction: Profits, Superannuation & Trusts Imagine what you could do with your tax saved.You could:Reduce your home loan.Top up...

Driving Profit Growth: A Holistic Approach for Business Success

by | Mar 12, 2024 | News | 0 Comments

Blog Home Driving Profit Growth: A Holistic Approach for Business Success Welcome to the journey of enhancing your business’s bottom line. Whether you're steering a...

Bitcoin tokens overlaid with fluctuating stock market graphs, symbolising the dynamics of Cryptocurrency and Tax return calculations.

Cryptocurrency and Your Tax Return

by | Jan 24, 2024 | News | 0 Comments

Blog Home Cryptocurrency and Your Tax Return In the evolving digital financial landscape, cryptocurrencies are more than just a trading asset; they're a new frontier in...

Exclusive New Client Offer

Contact our team today to get a FREE 30-minute meeting with one of our expert business accountants, including an ADDITIONAL free Financial Safety Checklist to help you on your journey to financial freedom.