We have found a cheap house with lots of potential and the plan is to renovate then sell in a few months. We are currently renting and do not own a house. Should we buy it as an investment and use it for our PPOR to avoid CGT or should we buy it, stay renting like we are then sell it. Technically anything you buy and sell is an investment but circumstances change and we could have had intentions of moving in but decided not to. Would we be panalised for that? Does this make any sense? Also the negative gearing advantages of an IP would be benefitial if we did it as an investment. We could make a good profit with the buy/sell margin on it's own without the tax benefits.
Your help would be appreciated as I know nothing about all this.aaabbbcccParticipant@aaabbbcccJoin Date: 2009Post Count: 71
I don't know a whole lot either, but I assume if you plan to "sell it in a few months" then you will want to pay as little capital gains tax as possible, thus you might be tempted to call it your PPOR and be exempt from capital gains tax.
.gibbo1Participant@gibbo1Join Date: 2008Post Count: 152
There are many different factors to consider, yes the financial side is one.
The time of the reno, what is required to be done, still working during this, current rental market, etc.
If you are living in the property and its a fairly major reno you could be having to put up with not having a functioning bathroom or kitchen for awhile, paint fumes, dust, can be cold during winter if replacing ceilings etc.
If you are both working during the reno, living in the house may make it more convieniant to do a little bit each day after work to save having to drive km's to your other place.
When you sell how easy is it for you to find another place to rent that is affordable.
Some of these decisions will be effected how long the whole process is.L.A AussieMember@l.a-aussieJoin Date: 2006Post Count: 1,488
Renovating and then selling "within a few months" has a few drawbacks:
1. At the moment, unless you can buy a FHOB category house for well under market value (good luck with that) you may be in danger of buying, renovating and owning a property that has not gone up in value as much as the cost of the renos. The markets are very flat in many areas right now – other than FHOB property, but you won't buy something really cheap with such a feeding frenzy going on I'd say.
There is a real danger of not getting back the cost of the renos from your sale price. Renos always take longer and cost more than you think they will. Trust me.
2. If you sell the renoed property within 12 months, you will be taxed on 100% of the cap gain, at your marginal tax rate. If you sell after 12 months, you will be taxed on 50% of the cap gain, at your marginal tax rate.
Don't know about stating the property is a PPoR and then selling it while living elsewhere to avoid CGT. This is an invitation to jail in my opinion. Not worth it.
Thanks for your advice. So if we live in it for a few months then sell it, we won’t have to pay CGT. I think the rule is 3 months minimum. That may be the way to go IF the property is actually a bargain and the project worth doing. We are having a look at it tonight.RedRoofMember@redroofJoin Date: 2009Post Count: 5
If you live in the property for 3 months, you wont avoid CGT. You have to live in it for the full time that you own it. GCT is pro-rated between the time you live in it and the time you don't. You can find out the detail of tax ramifications for free at:
Having said that, there are few markets at the moment where it is worth renovating for profit, so be cautious and realistic about the end gain. But if you do proceed, you are best to buy the property as your PPOR and live it in until you sell, so as to avoid higher stamp duty as well. Hope this helps.
Principal, RedRoof – Licensed Buyers Agents, Brisbane
http://www.redroof.com.auCoogee126Participant@coogee126Join Date: 2009Post Count: 51
hi, you will have to hold that IP for more than 12 m to get discounted CGT ( 50%) if claim the house as investment property, however, you might lose the FHG eglibility if you have not claimed FHG before.
if you claim this house as your PROR, you can sell that place exempt of CGT, but you need to live in that house for a reasonalbe of time.
for FHG, you will need to move in within the 12 months of the contract date, and live in that house for a continuous 6 months to get the FHG. you can sell that place exempt of CGT if claimed as PROR.Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Not quiet correct
You will have to hold that IP for more than 12 m to get discounted CGT ( 50%) if claim the house as investment property,
The date is actually based on the original contract date so you can actually live in the property for a month if the Contract date was dated 11 months and 1 day prior. CGT is based on Contract dates and not settlement dates.
Richard Taylor | Australia's leading private lender
Thanks for your advice. We looked at it and it is not worth buying. It just needs too much work and money. When you look at similar houses we would never get our money back. Thanks again for your advice, good to know how it works if another comes up in the future.