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

Viewing 17 posts - 21 through 37 (of 37 total)
  • Profile photo of James_JohnsonJames_Johnson
    Member
    @james_johnson
    Join Date: 2005
    Post Count: 86

    Do you have to pay capital gains tax on the price that the house has gone up by in the period that you claimed a tax deduction on the interest?

    Profile photo of LinarLinar
    Member
    @linar
    Join Date: 2004
    Post Count: 567

    Hi Rhys

    No you don't.  Great, isn't it?

    K

    Profile photo of James_JohnsonJames_Johnson
    Member
    @james_johnson
    Join Date: 2005
    Post Count: 86

    Thanks Linar,

    My friend who works at the ATO said I would need two independent valuations and then pay CG tax on the amount the house went up by while i was claiming a tax deduction on the interest during the six year period.

    I thought he was wrong at the time.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 15,976
    wteaustralia wrote:
    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.

    Hi Mat

    You could do that, but you can only claim one house (except for 6 months cross over) as your main residence at any one time.
    So if you are living in your new house and claim the old house as the main residence for 6 years, then you will be liable for CGT on the new house for this time. So what you would do is to wait and see which one has the least capital gain – maybe, or you could just delay CGT by claiming exemption on the one you are selling regardless of which one has gone up more, depending on your situation.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://www.terryw.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Operating Remotely)

    Profile photo of andersoncm80andersoncm80
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    @andersoncm80
    Join Date: 2013
    Post Count: 1

    Hi,

    I also have a question regarding CGT

    I purchased land and built a house in late 2002. I lived in the house till end of 2004. I then rented it out till beginning of 2010. I then lived in it till end 2012. Have then rented it out till end of 2013 when I sold the property. Lived in total 4.5 years. Rented total just under 6yrs. I now live in a different house. Would I be able to not have to pay CGT for the house I built in 2002?

    Thanks

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
    Post Count: 1,404

    If you own no other house you were claiming as your PPOR then you pay no CGT. When you move back in the clock resets and you can move out again and claim another 6 years.

    Nice hey!!!

    Profile photo of BenBen
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    @albanga
    Join Date: 2014
    Post Count: 54

    Hey All,
    I just stumbled across this very interesting topic but am having some trouble fully getting my head around it.

    Let us say I own 2 properties on a subdivided block. I live in property A as my PPOR and then rent out property B for 2 years. After the 2 years I decide to sell property A and move into property B.
    From what I am reading I would be CGT exempt for the sale of property A.

    I then live in property B as my PPOR for 2 years and then sell that. Am i correct in saying that I would be liable for CG for the 2 years I held it as an IP before selling?

    Profile photo of itsandrewitsandrew
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    @itsandrew
    Join Date: 2007
    Post Count: 294

    Hey Ben,

    From what I have gathered in my own case, when looking at CGT exemption, is that you must have lived in a property before you can have any CGT exempt status. And you can only have CGT exemption for one property during any given period. I hope that makes sense. Best to get advice tailored to your situation from an accountant.

    Also, did the property make a CG in that two year period? Depending on the circumstances it may not be a big cost to factor in.

    Andrew

    itsandrew

    Go as far as you can see and you will see further.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 15,976

    Ben

    If you have lived in A since acquistion it could be exempt from CGT. If you move into B it will always be subject to CGT but based on the period it was rented out as a % of the time held.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://www.terryw.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Operating Remotely)

    hawa1
    Participant
    @hawa1
    Join Date: 2017
    Post Count: 2

    Hi guys,

    Sorry to bump this old thread but I am trying to work out my situation. I will probably speak to an accountant before making a decision but just some advice in the interim would be great.

    Bought PPOR (Property 1) in 2009 lived in until 2013 at which point we moved out, rented it and purchased another property which became our PPOR (Property 2).

    Now in 2017 if I was to sell property 2 claiming it as my PPOR for CGT purposes and move back to Property 1 for a few years before selling it, would I
    1 – need to pay CGT on the total gain from time of purchase.
    2 – Pay CGT for on the gain between the first date of renting and the date of moving back.

    Thank you, Anthony

    Profile photo of TerrywTerryw
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    @terryw
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    Hi guys,
    Sorry to bump this old thread but I am trying to work out my situation. I will probably speak to an accountant before making a decision but just some advice in the interim would be great.
    Bought PPOR (Property 1) in 2009 lived in until 2013 at which point we moved out, rented it and purchased another property which became our PPOR (Property 2).
    Now in 2017 if I was to sell property 2 claiming it as my PPOR for CGT purposes and move back to Property 1 for a few years before selling it, would I
    1 – need to pay CGT on the total gain from time of purchase.
    2 – Pay CGT for on the gain between the first date of renting and the date of moving back.
    Thank you, Anthony

    1. no
    2. no

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://www.terryw.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Operating Remotely)

    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
    Post Count: 1,287

    Hi Hawa,

    As I understand it, you can only have one PPOR at any one time – so, at some point, ONE of those two would not be your PPOR for a period.

    Now in 2017 if I was to sell property 2 claiming it as my PPOR for CGT purposes and move back to Property 1 for a few years before selling it, would I
    1 – need to pay CGT on the total gain from time of purchase.
    2 – Pay CGT for on the gain between the first date of renting and the date of moving back.

    It depends on what “it” means above.

    You first talk of selling property 2, and I believe Terryw has answered you as if “IT” referred to Property 2. i.e. no CGT to pay.

    However, the phrase “move back to Property 1 for a few years before selling it” seems to refer to Property 1 in that instance.

    In THAT case, I would think you WOULD be up for CGT – at least for the period in which Property 2 was your PPOR (2013 to 2017). That could require that you get a valuation of Prop1 as you move into Prop2, and again as you move back into it in 2017. The difference between the two values might be the “gain” that you could be assessed for. Or, it might be a “pro rata” apportioning….. e.g. you had it as PPOR for 4 years, then rented for 4 years – so maybe 50% of the gain?

    In that instance, again Terryw is the right one to answer it, so I’ll leave it to him to put us both right !!

    Benny

    hawa1
    Participant
    @hawa1
    Join Date: 2017
    Post Count: 2

    Thank you both for your response. I just stumbled across the answer on the ato website. If you are interested it is here: https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Using-your-home-to-produce-income/?page=4
    (Example: Home becomes a rental property after 20 August 1996) in this link sets out the answer. Basically the difference btwn the value at the time of renting and at the time of moving back in is liable for CGT.
    Thanks again

    Profile photo of CachepcCachepc
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    @cachepc
    Join Date: 2018
    Post Count: 2

    I have a situation, which I don’t see as unique but it does have some complexity
    1. Divorced in 2011 buying ex-wife out of house – I have 2 boys (19/21)
    2. In Nov 2013 moved to NZ for work, renting house out
    3. In Nov 2014 moved back to AU into new wife’s house – married Mar 2015. She has 2 boys (25/28)
    4. Looking at moving back into my place before 6 years is up.
    5. We have a Deed of Agreement (pre-nup) for assets and will which means that her house, super and shares are all 100% hers and I will never receive these should she pass or we divorce – correspondingly, same applies to her in respect to my assets.

    My understanding is that because I re-married, that I instantly take on a PPoR being my wife’s house, even though I will never receive anything from that.

    If that is the case, does:
    1. This mean I am required to pay CGT should I sell my house – if so, when does the calculations start ? OR
    2. Does it mean that we are changing PPoR and because I owned it previously, if we live in it for a year, that there will be no CGT

    We are tempted given the above to apply for a ATO private ruling as it is clear I will not receive any benefit as I actually never owned another house.

    Thanks

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 15,976

    1. No
    2. Possibly. But spouses property will be subject to cgt.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://www.terryw.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Operating Remotely)

    Profile photo of CachepcCachepc
    Participant
    @cachepc
    Join Date: 2018
    Post Count: 2

    Hi Terry,

    thank you for your reply. Can you elaborate on why I will not be subject to CGT on my place – is this purely because I returned before 6 years was up ? I thought as soon as I was considered to have a new PPoR (by re-marrying) that I would be liable for CGT when I sold it after a year.

    Does my wife’s property then start CGT counter when we move in and therefore it is best to get it valued before / at the time we move ?

    Thanks

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 15,976

    I didn’t say you would not be subject to CGT on your place. You need to make a decision on whether to claim the main residence exemption on this property or the other.

    No valuation needed for new property as any CGT will be worked out on apportionment.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://www.terryw.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Operating Remotely)

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