Hi again folks, was just wondering if anyone can see any problems with moving into an I/P. It is in the back of my mind to (in the future) sell my PPOR, reduce some debt, and move into one of my I/P’s. Will that affect capital gains or anything of the likes? As I said, it’s way off yet but I like to plan to work around any possible problems.
Thanx
Marty[
]Excellent idea.
If you ever sell your new PPOR CGT will only apply for the period it was rented out.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thank you Terry for your swift reply, you seem to be somewhat of a guru (along with others) on this forum and your advice/input is greatly appreciated by myself and I’m sure others. I didn’t think I would be up for the dreaded C.G.T. (unless I sold) but just wanted to check.
Thanx again
MartyTerry,
Can I just jump in here and ask if you can advise on possible CGT on a high end property that I am currently renting. We bought this to be out residence in australia and kept it for one year – in the end our assignment overseas was extending and we rented out the apartment. We have no other residence in Australia. If we were to sell this property in the future would we be better off from a CGT point of view to sell before we return to Aus, or to live in it for a couple of years and use it as our PPOR before selling? Sorry if I shouls have started a new post instead of commandering Marty’s (sorry Marty)
Regards
Abby
Excellent idea.If you ever sell your new PPOR CGT will only apply for the period it was rented out.
Terryw
[email protected]Hi Maximus,
I can offer a comment from my limited experience.
I assume you still have a mortgage over the IP? If so then the loan would cease to be an Investment loan and revert to the standard mortgage…ie interest rate change (maybe), no tax deductions, etc, etc.
If not, then all for the better.
If I’m telling you to suck eggs then I’m a bit of a [:0)]!! [
][]BTW Terry is a Guru! He kindly helped me out assesing my Borrowing Capacity. Thanks Terry!
Dram
Little Bee
Check with your accountant (I am not one), but there is a provision in the Income Tax Assesment Act that allows you to live away from your PPOR for a period of 6 years and to still claim it as your PPOR and claim a full CGT exemption.
I don’t have the section of the act handy, but can dig it up for you.
And you can move back in for a short period and hte 6 years starts again.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Actually you only get a partial CGT exemption. You have to pay CGT on the time this property was rented out (sec 118-145). Here’s an example:
You Acquire a property on 8/4/1992 and use it as your main residence until 17/8/1994. On 18/8/1994 you start renting the property out. On 29/11/2001 you sell the property. The partial exemption is as follows:
days in period 8/1/1992 to 17/8/1994 / days dwelling owned * capital gainVery hard to own an asset – earn taxable income from it – and not have to pay CGT.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auYou are a smart tac Stu.[^]
Cheers
leigh K[]Read, learn, grow but most of all just do it.
hi Stuart
I must disagree with you on this one.
Section 118.145 of the Income Tax Assessments Act 1997 (http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html) allows you to be temporarily absent from your main residence for up to 6 years, and to still claim it as you main residence. You cannot have more than 1 main residence at the same time (except for a period of 6 months while you are in the process of moving – section 118.140).
This works well for people working overseas or for people who rent temporarily somewhere else.
So you can rent out your house and still claim a CGT exemption if you don’t have another main residence at the same time and the period is less than 6 years. The 6 years starts again if you move back intothe house.
Here is an actual example from the link above.
Example: You live in a house for 3 years. You are posted overseas for 5 years
and you rent it out during your absence. On your return you move back into it
for 2 years. You are then posted overseas again for 4 years (again renting it
out), at the end of which you sell the house.You have not treated any other dwelling as your main residence during your absences.
You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years.
You can make this choice when preparing your income tax return for the income year in which you sold the house.
Ps Confirm this with your accountant.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry – sub-sec 2 says if you use “part” of the dewelling for assessable income purposes… I checked my answer with the Master Tax Guide (but it has been known to be wrong before).
I’m email one of my tax nerd mates from KPMG and let you know.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHey Maximus,
I bought a property many years ago in VIC.
I lived there with two house mates — and negative geared the two thirds of the property that I was renting out. Because of this situation I had a standard loan not a investment loan. But I could claim all the deductions associated with negative gearing. As I was paying a lot in tax at the time — the situation worked well for me.When I sold the house 3 years later I made a small loss on the deal overall (due to large reno’s and capital works $$). This loss was written off against my tax the next year by my accountant. I never really understood how it all worked — but I didn’t have to pay CGT so I was happy at the time and left it at that.
Goodluck.
tj []TJ
I think the rule is different if you rent out part of your house while lving in it. You lose the CGT exemption completely. I think.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I think I’m more confused now than before I asked the question, lol. To clarify, I live in Sydney and the I/P is in Brisbane, it has been rented out from day one (I have never lived in it), but if I moved into it at a later date and did not sell, I should NOT be up for C.G.T. Is that correct?
ThanxMaximum, you are only ‘up for’ CGT IF you sell – if you live in a house after it has been an IP, that is FINE – but WHEN you sell, you pay CGT on a proportional basis…ie…don’t sell until you retire, your marginal tax rate will be minimal, you pay CGT on HALF your capital gain at your marginal tax rate…proportional on the amount of time the property was IP/PPOR. ie house bought for $50,000, house sold for $200,000. Capital gain $150,000. Pay tax on HALF, $75,000, at marginal tax rate. House rented for 10 years, lived in for 5 years.
1/3 is tax free, 2/3 has to be handed over.
Of course, all your improvements, purchase costs etc etc come out of the ‘profit’ figure before any tax owing is calculated.
Hope this helps.
If you die, and your kids inherit the house, I’m not sure what happens….ring the tax office.
Kooringal.
quote]
I think I’m more confused now than before I asked the question, lol. To clarify, I live in Sydney and the I/P is in Brisbane, it has been rented out from day one (I have never lived in it), but if I moved into it at a later date and did not sell, I should NOT be up for C.G.T. Is that correct?
Thanx[/quote]
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