A mate of mine just emailed me with with a plan. I don’t agree with it as i dont think it will work. I said i’d put it up here on the forum for comment.
He’s got a piece of land on Vic, that he bought years ago, and its gone up buy an absolute stack of money…lots n lots etc.[strum]
He wants to sell it, but doesn’t want to pay massive CGT. He therefore wants to sell a property that he has over here in WA, take the proceeds, and build a house on the piece of land in Vic. He then wants to move to Vic & live in that house for a year, and then sell the house n land. He believes he will then not have to pay CGT, thus saving him an absolute packet.
As far as i know, he will pay CGT on any increase in value that occured prior to him building his house in Vic. As all the land value increase happened prior to him living on the property, he will pay the same CGT as if he just sold it the property now.
Also, moving costs and sales costs and the like, that he spends to go the Vic will add up very quickly too.
As Redwing has said your friend will only make his Victorian property exempt for the period that it is his PPOR and as such the benefits to be gained through this process are negligible.
Given the property has been owned for some period of time your friend may be able to elect to use a more favourable CGT calculation method, combined with a low/no income year, some negatively geared assets and he could reduce tax anyway without the need for a convoluted solution.
Factor in removal costs, selling costs of his WA property, emotional issues resulting from a move of home and so on he may well find himself level pegging with no/minimal advantages to be gained.
If he were moving to Victoria for other reasons then there would be ancillary benefits.
G’day Cabo Wabo,
Never never sell. Borrow against the equity in the place to build a home on it then rent it out. If he doesnt want the bother of tenants then still develop the property and then sell. Will still have CGT to worry about though. Never never sell for mine!! Just sit back and harvest the equity or gear off it for more properties. He could be a big time property tycoon like everybody else in the forum hehe!!!
From your profile I notice that you are about the same vintage as me.
When I was alot younger, one piece of investing advice I was given that still sticks was never sell a property and never pay back a loan. ie as mentioned in earlier posts in this thread “”harvest the equity””. which will grow over time. I have a new understanding of this , revealed through reading posts on this forum and another prominent investment forum. ie the “”incidental”‘ costs of buying and selling RE are huge, then there is CGT to consider when selling.
The alternative is to borrow against your equity at a tax/interest rate of say 7% – no selling costs, you still own the asset and have cash in hand to do something else with, whether that be an overseas holiday or another IP or shares. – I would never have been able to think in those terms except for the “”education”” I have received from this forum.
If you want to flesh out the concept of never, never sell then check out Derek’s post in this thread and go to the link at the bottom of his post. The Investors Club use this strategy and so do I.
The Investors Club link may well be what your friend is looking for. It’s worth a look anyway.
I have no direct interest in The Investors Club. I just happen to like the concept and I have aquired property through them.
In Qld the Investors Club motto of never never sell had nothing to do with them trying to save you CGT but to avoid you finding out how much the property you had purchased from them had fallen in value.
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The concept of never, never sell is still valid never mind what theories there are on any ulterior motives by anyone. You still do your due diligence before purchasing and as long as a doubling of value occurs in a reasonable time (say 10 years) then why would you sell an appreciating asset? Just have it revalued every year or so and leverage off the equity to fund further purchases or otherwise use the money elsewhere.
Are you saying that the property market in QLD falls in value over time or just in the short term?