Capital Gains Tax and forex loss

[AJinOZ]

Hi,

My husband owns an investment property in the UK that he bought in 2006 for 106,000 pounds. We immigrated in 2009 to Australia and are thinking of selling it soon, hopefully for 130,000 pounds. So, given that the sale price would be higher than the purchase price in pounds we were expecting to pay Capital Gains Tax in Australia. However, we are wondering what exchange rates will be used, because  the exchange rate on the date of purchase was a lot higher than it is now at the time of sale. Value of the property in 2006 in Aus dollars = 262,880, expected value on sale this year in Aus Dollars = 232,600. So, if we use the actual exchange rates on the day of purchase and on the day of sale, we actually have a loss seeing it from an Australian dollar perspective?

[Ken]

Unfortunately most of that FX loss would have been made between 2006 and 2009 when your husband wasn't resident in Australia so you can't claim it in an Australian tax return. The taxable gain is that between becoming a (permanent) tax resident in Australia and selling the property.

In an ideal world you would know the value of the property on the date you arrived in 2009 (that's assuming you moved on a PR visa - if you arrived on a temp visa it's the date you received your permanent visa), but in reality you can apportion the appropriate proportion of the gain on a straight line basis from 2006. You have the option to use the FX rate at the time of sale for both the purchase and sale price but you can also use the rate on the date you moved.

Sorry, but you cannot use the rate from 3 years beforehand.

Any tax you have to pay on the gain in the UK can be used as a tax offset in Australia.

[AJinOZ]

Thank you. That makes sense, although it is shame we missed out on the FX loss!