Friday, April 23, 2010

TWFT: CGT issues for expat's buying Hong Kong property

Each week (or thereabouts) I'm going to post the most interesting piece of financial advice I've come across for expats during the past 7 days.

To kick it off, my inaugural expat finance tip is regarding Hong Kong property and capital gains tax.

It's true that one of the many expat-friendly tax rules in Hong Kong is that there's no CGT on the sale of property. And given its not uncommon for HK property to rise 30% in one year, that's a massive tax saving and a bulging purse!

But one thing to note as expat - when you return home, if you still own the HK property and decide to sell...uh could be stung with CGT! So for those Aussies and Brits who land back in Sydney or London, with their Mid-levels property still in the portfolio - sorry, but you'll now be taxed at your marginal rate on any gain made since the day you resumed tax residency.

I'm an Aussie expat living in HK. In 2000 I purchase a HK property for HKD$6,500,000. In 2008 I return to Sydney, at which time my property is worth HKD$8,000,000. The value on my day of repatriation is the new Cost Base for Australian tax purposes. 
In 2010 my property is worth HKD$10,000,000 and I decide to sell it; my capital gain is HKD$10m - HKD$8m = HKD$2m. This is converted to AUD and included as taxable income in my Aussie tax return. Ouch!

Some ways I could manage this:
~ Sell the HK property before I return to Australia
~ If I sell the property when back in Australia, 
a. sell in a year I'm not earning anything (or low earnings) so on a lower tax bracket
b. make a concessional super contribution and claim a tax deduction (maximum is either AUD25k or AUD50k depending on my age AND can only make a concessional contribution if self-employed or satisfying the 10% rule)
c. offset the gain with any other losses I've accumulated
~ Don't sell!

It's potentially a tricky situation so think ahead before returning home.

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