澳洲Australia property Rented PPOR CGT question | Sydney


在澳大利亚 The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m


Hi guys

Just a quick CGT question from me after having read heaps of threads (not yet found one relating to my situation!).

I purchased a PPOR with my fiancee on 15 October 2009 and claimed the FHOG for doing so. January 15'th 2010 was settlement and we had the place rented out on 1 Feb 2010.

We are determined to rent the place until January 1 2011, moving in so that we can keep the FHOG.

My only concern about all of this is the CGT implications.... what happens if we continue to live in the place, then sell 5 years later, making a Capital Gain of say, $200,000 ?

Is CGT payable based on the proportion of time it was rented, despite the fact that we lived in it for the 5 years prior to sale? If so, i'm confident that I could get a valuation after the tenants move out which says that the property has not increased in value over the period it was rented...that should take care of the CGT, right?

Alternatively.... what if my fiancee and I decided to move in on 1 January 2011 for 6 months so we could keep the FHOG, then decided to keep the place as an investment property with a new set of tenants? I figure my fiancee and I could rent elsewhere and benefit from negative gearing the property for a number of years... How can we take care of the CGT implications here? Is there a rule which says we don't pay CGT if we live in it for a certain period of time as a PPOR? Is there any way around CGT here?

Thanks guys

Sorry about the long-windedness :p

Allan  

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This has been discussed a fair bit lately. Turning a property from an IP to PPOR results in capital gain being calculated on a time basis. So if you rent it out for the first year, then live in it for 5 years, then 1/6th of the gain (your cost base becomes complex and can be increased by holding costs whilst it's a PPOR etc. - refer other posts) will be taxable.

If you can live in it and get it a PPOR status, then when you move out it can retain that status for up to six years whilst you rent elsewhere yourselves, so no capital gain is payable during the period it has that status. But remember this is only after it becomes PPOR. If you still rent it out for the first year, then it will still have a CGT issue when you sell for that period of time.  

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Biggles said: ↑
This has been discussed a fair bit lately. Turning a property from an IP to PPOR results in capital gain being calculated on a time basis. So if you rent it out for the first year, then live in it for 5 years, then 1/6th of the gain (your cost base becomes complex and can be increased by holding costs whilst it's a PPOR etc. - refer other posts) will be taxable.Click to expand...
Would my solution of getting a valuation done before we move in eliminate the CGT issue? Assuming that the valuation states that over the time it was rented, the property never increased in value. Ie: on January 1 2011 when we move in, the property is still worth exactly the same as it was when we settled originally in January 2010

Biggles said: ↑
If you can live in it and get it a PPOR status, then when you move out it can retain that status for up to six years whilst you rent elsewhere yourselves, so no capital gain is payable during the period it has that status.Click to expand...
Would 6-months living in it from January 1 2011 cut the mustard to give it PPOR status, thus allowing us to rent it out for six years as an IP, paying no CGT when it is sold at the end of the six year period?

Thanks alot mate  

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No, a valuation won't do you any good when changing from IP to PPOR. It's only available for CGT calculations when going form PPOR to IP.

Re: 6 year rule - it depends on if you are claiming the main residence exemption for another property at the time. If you are renting, then the 6 year rule should be available to you.  

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dancitron said: ↑
Would my solution of getting a valuation done before we move in eliminate the CGT issue? Assuming that the valuation states that over the time it was rented, the property never increased in value. Ie: on January 1 2011 when we move in, the property is still worth exactly the same as it was when we settled originally in January 2010Click to expand...
dan c said: ↑
No, a valuation won't do you any good when changing from IP to PPOR. It's only available for CGT calculations when going form PPOR to IP.Click to expand...
Why do you say that?

If it works for PPOR to IP why wouldnt it work from IP to PPOR?

For example,
July 2008 - Purchase house for $300k (Investment Property).

July 2008 to July 2009 - Property is an investment property. Valuation of property remains at 300k because the market isnt going anywhere.

July 2009 to July 2010 - Move into property and it becomes your PPOR.

July 2010 - Decide to sell property and upgrade. Property is now valued at $500k.

Obtain a valuation stating the house's value is $300k, therefore no capital gain has been made between the period of July 2008 and July 2009.

During period of July 2009 and July 2010, property prices have moved up, however during this period of growth, the property was a PPOR therefore no CGT is applicable.

I fail to see how this is different to selling an IP and buying a PPOR, other than the fact its the same house.

dancitron said: ↑
Would 6-months living in it from January 1 2011 cut the mustard to give it PPOR status, thus allowing us to rent it out for six years as an IP, paying no CGT when it is sold at the end of the six year period?Click to expand...
I would say no based on the ATO website. The keyword here being "acquired"

ATO website said:
The property must have been your main residence
To qualify for a full CGT exemption, the property must have been your main residence from when you acquired it. If you move out of the property and rent it out, you can continue to claim an exemption from CGT for up to six years after you move out. If you do not rent it out, you can claim a CGT exemption for it for an indefinite period after you move out.Click to expand...
 

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dan c said: ↑
No, a valuation won't do you any good when changing from IP to PPOR. It's only available for CGT calculations when going form PPOR to IP.Click to expand...
Alright...thanks for the clarification on this.

dan c said: ↑
Re: 6 year rule - it depends on if you are claiming the main residence exemption for another property at the time. If you are renting, then the 6 year rule should be available to you.Click to expand...
I won't be claiming the main residence exemption on any other property so that wouldn't be an issue. So would 6 months living in it, from 1 January 2011 before we decide to rent it out for 6 years (and go and rent ourselves) be enough to claim the PPOR CGT exemption?

The whole point of this is so that we can negative gear the property...claiming tax deductions for the interest component of the mortgage repayments. That would be ideal........enjoying the deductions for 6 years while it is rented and paying no CGT upon sale in 6 years!  

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neK said: ↑
Why do you say that?Click to expand...
Because it's the law.

If it works for PPOR to IP why wouldnt it work from IP to PPOR?Click to expand...
Because the tax man said so.

All been fully discussed recently in other threads.  

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Are you able to post a link the to thread?  

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neK said: ↑
Are you able to post a link the to thread?Click to expand...
Apparently my search function works better than yours. :p

Here's one of them:

http://www.somersoft.com/forums/showthread.php?t=63181&highlight=cgt  

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Biggles said: ↑
Apparently my search function works better than yours. :p

Here's one of them:

http://www.somersoft.com/forums/showthread.php?t=63181&highlight=cgtClick to expand...
Actually it does... mine keeps freezing on me for some reason... must be the Chrome browser. :)  

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Biggles said: ↑
Because the tax man said so.Click to expand...
LOL - very true Biggles! :)

Look I'm just trying to make sure I don't pay too much tax. I'll pay what I must but I won't tip them because they certainly aint doing a great job!

I hope my strategy of moving in for 6 months, then renting it out for 6 years, enjoying the interest deductions for that time works out..(ie: No CGT payable despite the fact it was rented out for 6 years and I was claiming the tax deductions all the way.)  

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Cheers for the link biggles.

Cant say I agree with the logic, other than the ATO is out for a money grab.  

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neK said: ↑
Cheers for the link biggles.

Cant say I agree with the logic, other than the ATO is out for a money grab.Click to expand...
There is some logic behind it, and it can work both ways.

You are assuming the biggest growth period will be when it's a PPOR. What about if the biggest growth is whilst it's an IP then enter a flat market and not much growth when it's a PPOR?

e.g. buy IP for $300K, three years later it's worth $500K. You now move into it and it's PPOR. Market enters a flat period and 2 years later it's worth $550K. Are you saying you'd rather pay CGT on $200K than pay CGT of $250K x 3/5 ? :D
(this is keeping it simple and doesn't even include holding costs etc. in the cost base)  

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Reading this, my question would be that even though you bought it as a PPOR, the fact that it was rented for a year before you moved in would muddy the waters.

I wonder whether the tax office would view this as an IP or a PPOR?

Personally, I would be asking for a ruling before deciding how you move forward. No good assuming one thing and planning around that assumption, only to find out years later that your assumption was wrong.  

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Biggles said: ↑
There is some logic behind it, and it can work both ways.

You are assuming the biggest growth period will be when it's a PPOR. What about if the biggest growth is whilst it's an IP then enter a flat market and not much growth when it's a PPOR?

e.g. buy IP for $300K, three years later it's worth $500K. You now move into it and it's PPOR. Market enters a flat period and 2 years later it's worth $550K. Are you saying you'd rather pay CGT on $200K than pay CGT of $250K x 3/5 ? :D
(this is keeping it simple and doesn't even include holding costs etc. in the cost base)Click to expand...
But what about the reverse where its a PPOR to IP.
If keeping it simple is the key, then the same rule should apply to both. Either have everyone obtain a valuation or calculate the CGT pro rata.  

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neK said: ↑
But what about the reverse where its a PPOR to IP.
If keeping it simple is the key, then the same rule should apply to both. Either have everyone obtain a valuation or calculate the CGT pro rata.Click to expand...
So you want the 70 year old couple buying their PPOR, or the person who couldn't give a damn about property investment but buying their home, to have to get accounting advice and keep all tax records for their home? If you did it for PPOR to IP as you suggest, then EVERY single person buying a house would have to have tax advice and keep all their documents relating to their house (this includes all interest paid, rates, repairs etc.), just in case, for whatever unforseen reason it became an investment property 1, 10, 20 years down the track.  

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No, definitely not, which is why I dont really agree with the pro rata option at all. The gain should be taxed when its an IP not a PPOR.

My opinion is that the valuation option should apply upon changeover from PPOR to IP and IP to PPOR should be applied in all instances. Keeps the system much more simpler as well as fairer.

Anything different is a money grab from the ATO really.  

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wylie said: ↑
Reading this, my question would be that even though you bought it as a PPOR, the fact that it was rented for a year before you moved in would muddy the waters.

I wonder whether the tax office would view this as an IP or a PPOR?Click to expand...
Well the very fact that the Government allows me to keep the FHOG and rent the property as long as I move in within 12 months seems to validate the fact that they still view it as a PPOR..... imho. :p  

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