Hi, I am new to the forum & have found it very interesting – thank you.
I have sent the following problem to my accountant but unfortunately he is on holidays at the moment so I thought someone might be able to help me.
I sold my PPOR in September & have since moved into a rented unit.
Two years ago, I purchased “off-the-plan” a unit that I am intending to move into when it is completed. I am expecting this unit to be completed Feb/March 04. I purchased this unit for approx $520,000 using a put/call option. The advantage of this was the payment of stamp duty is delayed. This unit is now valued at approx. $700,000.
My question is – how long do I have to live in it so for the purposes of capital gains tax I can call it my main residence. 3mths, 6mths, 12mths – is there a time limit?
My son and I are not particularly happy living in a unit & are thinking of renting a house and renting out this unit as an IP.
My thought is – that we may have to live in the unit for a while & then have it valued before we move out & rent out the unit. If the unit was valued at $700,000 – then if we sell it in 2 years time, the amount of CGT would be calculated on the difference between $700,000 & the sale price, not $520,000 & the sale price.
Does that make sense?[
]Any assistance would be appreciated.
Can you tell me why you think if you get it valued when it is your PPOR that affects the puchase price for CGT ???
Can you tell me why you think if you get it valued when it is your PPOR that affects the puchase price for CGT ???I’m not sure I understand your question – but I’ll try & answer.
I think because as my PPOR, it is exempt from CGT, so for the purpose of paying CGT I only have to pay CGT on the difference between the valuation once I rent it out & when I sell it.
My understanding is u have to be living in it for 12 months
Regards Bear
My understanding is u have to be living in it for 12 monthsRegards Bear
Thank you
[]You need to establish your unit as your PPOR. I don’t think that the law requires you to live there a specific period of time. Thanks to a loophole, you can then move out for up to 6 years and still call it your PPOR (but you can only have one at a time).
You’ve probably already done enough to establish it as your PPOR with utility bills etc. If you move out and plan to sell it, consider moving in again shortly before you sell.
You’ll want to talk to your accountant more about this.
I think because as my PPOR, it is exempt from CGT, so for the purpose of paying CGT I only have to pay CGT on the difference between the valuation once I rent it out & when I sell it.
Don’t think so.I think the profit is net sale LESS net purchase price, pro rated over period non PPOR.
Don’t think valuation has anything to do with it.
Was wondering where you got such an idea for my own reference.Would love to be wrong
I’ve heard from different people (I think Dale Gatherum Goss was one) that if you move out of your PPOR then do a valuation straight away that that will be your ‘beginning’ price for calculation of CGT.
If the above is true, and I think it is, then the pro rata concept is only for where you rent it out first.
shushar, I don’t believe that there is a minimum time limit to establish as PPOR for CGT purposes (unlike FHOG). This has been discussed before, with (I think Mortgage Hunter) someome pointing to the legislation.
Cheers
Mel
I’ve heard from different people (I think Dale Gatherum Goss was one) that if you move out of your PPOR then do a valuation straight away that that will be your ‘beginning’ price for calculation of CGT.Mel have a lot of respect for your opinion but that disagrees with “Thompsons Australian Tax Handbook for 2003 ” sect 14.300
Would appreciate other opinions on this.
Rgds TerryTerry
it is my understanding that you may need a valuation when you move out of your PPOR as it is CGT exempt during this time. The CGT libility begins accurring once you move out (altho there are some ways around this).
What does the Tax Handbook say on this matter?
Terryw
Discover Home Loans
North Sydney
[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
Quote:Terryit is my understanding that you may need a valuation when you move out of your PPOR as it is CGT exempt during this time. The CGT libility begins accurring once you move out (altho there are some ways around this).
What does the Tax Handbook say on this matter?
Terry thats intersting ….the Tax handbook does not agree. It says it is prorated and puts up the formula.
Sure wish someone could quote an authority on this.From experience the ATO would be very iffy on a valuer. They seem to be able to produce results that vary enormously depending on who pays them.
My wife and I are moving out of home, at the end of the year and renting. I have a vested interest.If you are moving out and renting you should be able to take advantage of the 6 year rule. You can still class your oirignal home as your PPOR – even if you earn income, and pay no CGT if you sell. Do a search for more info.
Terryw
Discover Home Loans
North Sydney
[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
If you are moving out and renting you should be able to take advantage of the 6 year rule. You can still class your oirignal home as your PPOR – even if you earn income, and pay no CGT if you sell. Do a search for more info.Terry this may work if you have no other PPOR.
“Where NO OTHER dwelling is treated as the taxpayers main residence ” page 366
You don’t need to own it. If you are renting elsewhere then this is your PPOR.
Now a taxpayer may believe he does not have another main residence. T[
]he ATO may however decide that the bus shelter he has been sleeping in may meet the definition.Now to go search the definition of “Main Residence “
GMH
I think you will find that ‘main residence’ only refers to owned properties. Otherwise the rule would be redundant, you have to live somewhere, and if everywhere you lived was your main residence there would be no need for the rule.
There is an example in the legislation (ITAA (1997) Section 118-145) where someone goes overseas for 5 years and is still able to claim the original home as his main resdence. [Although, you could argue that he did not have an Australian main residence at the time.]
I have also asked a ATO tax investigator and he beleives you can still claim the other property as your main residence, even if you are renting elsewhere.
BTW, the relevant section of the legislation can be found at:
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.htmlIf this could apply in your situation, please talk to a good accountant as it couls save you a fortune.
Terryw
Discover Home Loans
North Sydney
[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
Shushar:
TD16 The CGT clock does not start until you exercise an option so it does not matter that you entered into the option while owning your house. I have assumed you didn’t exercise the option until the unit was completed.
Section 118-135 requires you to move in as soon as practical after owning it or the CGT clock will start.
TD51 The legislation does not specify a particular period of time. Time is only as relevant as other factors such as your intention, address on the electoral roll, where your personal effects and family are and electrcity etc connected in your name. I would recommend staying there 3 months.
Section 118-145 Allows you to move out and continue to exempt it as your PPOR for up to 6 years. After 6 years you can move back in and move out and start the 6 years again. You cannot exempt any other place as your PPOR in that time but it does not matter that you are actually living somewhere else.
Section 118-192 If you first rent out your home after 20th August 1996 the cost base becomes the martket value at the time of renting out. But this does not apply if you are using Section 118-145 to continue to class it as your PPOR.
The references quoted are available on the ATO web site.
Thanks Julia.
Do you know if under Section 118-145 you need a reason to move out? i.e. do I need to be overseas or interstate?
Originally posted by Julia
Section 118-192 If you first rent out your home after 20th August 1996 the cost base becomes the martket value at the time of renting out. But this does not apply if you are using Section 118-145 to continue to class it as your PPOR.Thanks Julia, you’re a champ. GMH 454, this is what I was talking about. It covers your back if you do decide to have another PPOR any of the time in those 6 years etc. Because it’s hard to predict now what you want to do – I would advise to get a valuation, and just store it with your files. Your tax return will love you if things do change.
Cheers
MelShushar,
Your situation is very similar to mine. I moved out of my PPOR in June 2003 and currently renting. I get a valuer to value my PPOR at the time I move out. Therefore, the CGT start at the time that I moved out ie. valuation price. Within the next 6 years starting from June 2003 to June 2009 I be able to move back in my first PPOR and there is no CGT. My intention is to move back in June 2008 while built my dream home, once finished move back out and get a new valuation.
Warm Regards
ChanDollars
[Keep going, you’re nearly reach the end of financial freedom]Sushar,
No reason needed for section118-145
Julia
]
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