Selling an overseas investment property - tax ramifications?

Hi Everyone,

My partner inherited a house overseas (in New Zealand) approximately 10 years ago. The house is tenanted and we pay tax on the rental income in his yearly income tax return. Just the other day he was approached by a family member who would like to buy the house. We are currently saving for our first home and sort of see the sale of the house as perfect timing, as we would use the sale price as part of our deposit. However, the house is only worth around $100k (we think) so we would like to know the tax ramifications of selling before we agree to a sale, as we don't want the sale price being eaten up by tax. Have any of you guys had any experience with this kind of thing? I know we should probably see an accountant, but our cash-flow is a little tight at the moment, so any advice would be very much appreciated.

Thanks in advance!

We have property in NZ also, but as we had no intent on selling soon (and figured the laws would change anyway) we haven't hit the problem. As of this FY, the government changed the rules on foreign source income (they want to tax the more), at the same time you can now claim foreign source loss on investment properties - which probably won't affect you with an inherited one.

You don't get hit with CGT in NZ (what a great idea!) but with the foreign source income / loss getting tighter you may get hit with that (which is worse than CGT with "no first half free") after you've paid what ever other taxes you need to in NZ.

I think you'll need to talk to an accountant but there aren't many who understand the cross-tasman tax implications. Strategic Wealth Management (advertise on this site) looks after ours (in Oz) so they are familiar with the income aspects at least.

Best of luck, Dave

Hello alidec, as you have been declaring the income over time the ATO is therefore aware that this property exists. The hard part for you is to determine a value of the property at the time it was inherited.

For capital gains tax purposes this will be the cost price of the property.

If the property was worth NZ$50,000 and you sold it for NZ$100,000 the amount of CGT you would have to declare and pay tax on would be NZ$25,000 at your marginal tax rate.