Trans-Tasman depreciation

Question from Kathryn updated on 8th March 2016:

I have an investment property in Tauranga which I have held since 2004 and I have lived in Sydney since 2002.

I am considering selling the property and would be making a capital gain of around $170,000 if I did so.

I have also claimed depreciation deductions for around eight years from 2005 to 2011 which amounts to $31,000.

I have declared this rental income in Australia and also the deductions.

I would like to ask you whether if I sell the property, I will be liable not only for CGT in Australia but also need to pay tax on the total depreciation clawback of around $31,000.

I understand that the CGT would be 50% of the capital gain as taxable income but unsure how the depreciation clawback would be treated.

If it is added on to my Australian income, it could very well make it unworthwhile to sell in the first place.


Our expert Mark Withers responded:

Firstly, whenever dealing with cross boarder tax issues its wise to take advice in both jurisdictions. Your question here relates primarily to the tax outcome in Australia and your advice should come from there.

So, things you should check with the Australian agent include:

1. Whether you entered under a temporary residents exemption. If so you may be subject to CGT only on the gain made since the temporary exemption expired.

2. Australia has a different depreciation regime from NZ. The accountant there should have reworked the NZ rental statement to adjust the claim for deductions that are not available in Australia. Depreciation claimed here is unlikely to have been claimed there which should mean the NZ recovery will not be assessable in Australia.

3. Depreciation will be recoverable here in NZ and taxable here unless you have accumulated losses to offset the recovery income. Losses here are claimable even if also claimed in Australia. If you are taxed in NZ you may still also enjoy a credit in Australia for the NZ tax paid up to their own marginal tax rate. Check whether this may offer any offset against the tax assessed on your rental income and or capital gain in Australia.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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