Forums / Getting Technical / Legal & Accounting / Turning your PPOR into an investment property and then back again

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  • Profile photo of James_JohnsonJames_Johnson
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    @james_johnson
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    My understanding is that you pay no capital gains tax on your priniciple place of residence.

    Is it possible to temporarily turn your PPOR to an investment property and claim all the tax deductions for interest and depreciation and to then make it your PPOR again so that you don't pay capital gains tax when you sell it?

    My understanding is that it IS possible if you rent it out for a period up to a maximum of six years.

    Does anyone know all the facts and details and where could I find further information?

    Thank you.

    Profile photo of James_JohnsonJames_Johnson
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    By the way I spoke to a friend who is very senior at the tax office and my technique is apparently legitimate. Will find the answer within a few days myself and if I remember will post it if no body here knows the answer.

    Profile photo of L.A AussieL.A Aussie
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    We are currently doing this with our PPoR.

    The limit is 6 years before you are liable for CGT.

    Profile photo of Scott No MatesScott No Mates
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    Isn't there some requirement that you must have relocated for 'work purposes' ie interstate or elsewhere where it is not reasonable to expect you to commute to your place of work eg 200 km, that is you can't move out of your ppor & rent next door for half the price of your ppor?

    Profile photo of TerrywTerryw
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    Why not look at the source – the Tax Act:

    s118-145 ITAA
    http://law.ato.gov.au/atolaw/view.htm?locid='PAC/19970038/118-145'

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of James_JohnsonJames_Johnson
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    So you can move out for six years and claim tax deductions on the interest. Move back in and not pay capital gains tax when you sell it?

    Profile photo of Richard TaylorRichard Taylor
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    Yes Rhys you certainly can.

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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of McNormanMcNorman
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    ok, this is interesting, 

    i have a property that was my PPoR for over a year,

    i have been renting it out for 3 years now,

    if my tennant moves out, and i wanted to sell,

    i could "move" in for a couple of weeks, sell, then pay no CGT.

    Surely this cant be right? Sounds mighty fine if so, woo woo

    Profile photo of Richard TaylorRichard Taylor
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    McNorman

    You could even wait another year or two and do exactly the same thing and Yes you will pay no CGT.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of elkamelkam
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    Hello McNorman

    Assuming you haven't bought another PPOR ?.

    Cheers
    Elka

    Profile photo of McNormanMcNorman
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    Bloody hell, yeh i did buy another PPOR after that. So I spose that buggers up that idea

    Thanks for the help anyways

    Profile photo of Beginners R USBeginners R US
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    Hello

    I am not 100% but I think you can choose it as your main residence and it will be CGT even if you don't move back into the property.

    Profile photo of blazeblaze
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    @blaze
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    Yes Beginners that is my understanding as well. You can treat it as your PPOR without the need for you to actually move in to the property.

    Profile photo of TerrywTerryw
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    McNorman wrote:
    Bloody hell, yeh i did buy another PPOR after that. So I spose that buggers up that idea

    Thanks for the help anyways

    Not necessarily. You can only claim one as your main residence at any one time, but you can chose which one (with the least gain).

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of McNormanMcNorman
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    so i could still move into the old PPoR, for say a month then sell, with no CGT.

    even tho i have owned another PPoR since?

    I think after reading a couple of other posts, this mabee correct if i stay long enough to get a power bill, etc
    I have PO box so mail change is no prob

    Profile photo of TerrywTerryw
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    You can only claim a place as your main residence once you have lived in it. ie you can move out and still claim it as your main residence. But if you previously did not live in the property, then you cannot claim it as your main residence until after you had mvoed in.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Operating Remotely)

    Profile photo of MenanaMenana
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    I have a similar question.

    I have a PPOR, have lived in it since I bought it in 2004 and currently renting it out since 2006. Currently Fiance and I are looking to buy land and build our future PPOR house (we actually found the block and plans will start soon).  I know that you cannot have two PPOR – so what is the process  ?

    I was initially considering re-financing my existing PPOR loan (which is Std Variable, P&I) into an investment loan…but after some thought – I think I'll be worse off and prefer to pay some principle off and should just keep it where it is ?. (I haven't done my tax yet – naughty!)
    So does anyone know if I'd be better off leaving it as is (as advised by accountant).

    Ok my third query – I'm shopping around for a loan for the future house.
    Any help out there ? I'd prefer to go with the big bank names…
    Initially one gave me a good deal, however just been told that's only based on me refinancing my existing loan with them.

    Thanks for reading :)

    Profile photo of LinarLinar
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    Hi Manana

    Once your new house is built you can choose which will be your PPOR.   The property that you think will have the most capital growth should be your PPOR.  In most circumstances this will be the new house.

    Speak to your accountant before you make the election.

    Just a note to the posters in this topic about making a PPOR an IP and then switching back, yes you do have to live in it from the time you purchase it for it to be claimed your PPOR.  If you rent it out for a year and then move in the Capital Growth during that year will have CGT consequences for you when you sell it.  As to declaring deductions on interest and expenses, these deductions can only be claimed for the period that it is being rented out.  You cannot have a property as your PPOR for 5 years, then rent it out for 12 months and claim all the interest and repairs for the whole 6 years as a deduction.

    And you don't have to move back into the PPOR to claim the CGT exemption.  As long as it has been your PPOR from the time you bought it and you haven't used it as an IP for more than 6 years (or 5, it's late and my brain is not working so well) you are entitled to the CGT exemption.  If you haven't bought another PPOR in the meantime then the original house is deemed to be your PPOR for the whole time.

    CHeers

    K

    Profile photo of harrycatharrycat
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    @harrycat
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    hello

    we are tossing around a few ideas at the moment as we have currently one more property than we want! bought a new PPoR with intention to sell current PPoR, however, the market is rather slow and we not been able to sell old PPoR.  Settlement for the new one is next week which means we'll have 2 PPoR.  what's the requirement for nominating which will be the PPoR?

    We are thinking of renting out the new one for six months then relisting the old PPoR and once sold, moving into the new PPoR to avoid CGT and get some tax relief. 

    As we purchased the new one with the intention of making it our PPoR we nominated on stamp duty nomination that it would be PPoR, likewise the mortgage documents.  Does anyone know what we need to do if we can't sell this place in next 2 weeks or so if we then decide to rent out new place?

    any advice much appreciated.

    cheers

    harrycat

    Profile photo of wteaustraliawteaustralia
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    Ok, so here is my situation. I have just moved into a house that I built as my PPOR and have just bought a block of land around the corner to build on as an investment property. If I was to move out of my current house and into the new one when completed I could then rent my current house for up to 6 years while still claiming it as my PPOR? I could then move back into it before the 6 years was up and rent out my other house and do the same thing?

    Will I have to pay CGT on the gains while it was a rental property or is it all exempt? Is it true that you only have to claim a PPOR when you are selling a property?

    Cheers,

    Mat.

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