Hi All
We have recently(8 months ago) moved into our second home which we currently have a mortgage on. Due to predominatly emotional reasons, we held on to our first home which we owned, and have rented it out since June 2002.
After finally comming to our senses, realising that emotions shouldn’t control business/investing decisions, we ended our aggreement with the tenents, and plan to sell it this month. The sale should pay out our current mortgage, with hopefully about 30k extra from the sale.My question is, will we have to pay CGT on this 30k, and then only end up with 15k?[
]Does the exemption from CGT on your family home end as soon as you turn it into an investment, ie rent it out?
I would really appreciate you thoughts/advice.
Cheers
Hi Hurricane,
Yes, CGT exemptions end on the family home (PPOR) when it is let out.
However, you will only be charged CGT on your PPOR from the date you let it out from, i.e June 2002 and not for the time you lived in it (when it was considered your PPOR). This is the date from when you purchased it and from the date you let it out.
Ideally, you should have had your PPOR valued for as much as you could have got away with so that the difference between this amount and your selling price is minimal. This difference would then be what CGT is calculated on.Conversely, if you buy an IP and then live in at as your PPOR at a later date, the valuation should be as low as you can get it from the date you move in.
Changes to CGT now mean you if you buy an investment from 1 October 1999, you only pay tax on half your capital gains if you hold it for more than 12 months. In effect, this means if you are on the top tax rate of 48.5 per cent, you will only pay 24.25 per cent tax on any capital gain you make on an investment.
Ciao,
Quentin~ better to die on your feet than to live on your knees ~
Isnt there a 6 year rule from the tax office where you can still claim the house as your principal place of residence? I am pretty sure i read that in some info from the tax office
Northy
Hurricane,
I think it will not be as bad as you think.
How long did you live in the first house?
(I am NOT an accountant. Please see your accountant to double check this..)
Say you lived in it for 2 years, (which is 24 months) before renting it out and you have rented it for 10 months.
The percentage of the time it was a IP is about 10/(24+10) = 30%So you will only pay 30% of the Capital gain you made on the property. You also get the 50% deduction.
For example: let’s say you made a $100,000 gain.
so only $30,000 will be taxable.
Now you can also get the 50% reduction, which means you will only pay tax on $15,000.I think that you also have a 6 month exemption too. Actually I think you could get away with paying hardly nothing. See your accountant about this.
Can someone confirm this?
*************
APIM coming very soon …
APDM coming soon …*************
Thankyou all for your comments, I really do hope it won’t be as bad as I thought it would be. Incidently, we lived in the house for 8 years before renting it out.
Thanks again
I beleive you won’t have to pay any CGT because of the 6 year rule. (I have done this, rented out my home, sold it and paid no tax). But I beleive that you can only have one PPOR at a time. So you may have to pay CGT on the new home if you ever sell it. But the period for caluation will only be the short time that you had this and the other property.
ps I’m no accountant.
Terryw
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
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