Hi,
Unfortunately I have come into a situation where I have just finished building a house that is classed as (or was going to be) my PPOR and have come to realise that on my own I am not going to be able to afford to live there at the moment. I have spoken to a few people in regards to this situation but I need a clear understanding before I make a decision on which avenue to take. If I could gain advice on what implications on the CGT for this property if any?
Option 1: I live in the property and take in a boarder that pays rent, will this have any implications in later years if I plan to sell it?
Option 2: I sell the place now before I have lived in it. I have had advice from a professional tax agent saying that the rule for classing a place as your PPOR is that you only have to prove intent of living in this property and if circumstances have changed then the exemption will still be valid even if I have not lived in this property? If this is the case then I can probably sell it and make the best of a bad situation and get out because if I have to pay CGT tax I'm pretty sure I will be covering costs which would be disappointing…
Option 3: Rent out the property until I can afford to live in it and rent with some friends for now. I have also recieved advice that I can rent this out for six years and still claim it to be my PPOR and not have CGT issues as you would a standard rental property?
I would very much appreciate any advice just so I can make the right decision and not get stung down the track!
Cheers
Seeing as no one has replied yet I thought I would try my best too respond. Although hopefully someone who knows more than I can answer you better.
Option 1: I think if they are classified as a boarder (paying their share of costs i.e. water, electricity, food) as opposed to a tenant (paying market rent) then CGT doesn't apply. (I may be corrected on this)
Option 2: Hopefully someone else can help with this one sorry. Although how do you prove intent of living in it?
Option 3: You will have to live in the property first for the 6 year CGT free period to apply. Although I don't believe there is a minimum time that you have to have it as your PPOR.
The main residence exemption would normally require occupying as your main residence as soon as practicable.
Cheers,
Rob
omacamo wrote:Option 2: I sell the place now before I have lived in it. I have had advice from a professional tax agent saying that the rule for classing a place as your PPOR is that you only have to prove intent of living in this property and if circumstances have changed then the exemption will still be valid even if I have not lived in this property? If this is the case then I can probably sell it and make the best of a bad situation and get out because if I have to pay CGT tax I'm pretty sure I will be covering costs which would be disappointing…
I have to disagree with the advice you have received. The ATO are quite clear in saying that the mere intention to occupy a dwelling, without actually moving in, is not enough to obtain the main residence exemption.
You would have to move in to qualify for the main residence exemption.
Option 1: – Shouldn't have any implications, as boarding is treated differently to renting. You would not be able to claim any expenses related to the boarder.
Option 2: – As discussed above, you would have to move in to be eligible for the main residence exemption. Depending on what it cost you to buy the land and build, and what you can sell it for, there may be very little CGT anyway.
Option 3: – Your advice is a little off. You have to live in it first, to be eligible to use the six year rule. Then you can rent it out, and still be free of CGT, as long as you don't have another PPOR.
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