All Topics / Legal & Accounting / 6 year rule clarification required

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  • Profile photo of rabbit80rabbit80
    Member
    @rabbit80
    Join Date: 2009
    Post Count: 8

    Hello All,

    Here is my situation:

    I bought a property as a House and Land Package in march 2009. The construction was completed in Nov 2009.. I moved in the property within a week . I have been living there since as my PPR.  This property is bit far from the place of work, and my intention is move out and rent close to work (and rent this property out).  I had bit of knowledge about the 6 year rule ..(CGT assumption rule)..that allow me to claim a property as PPR if

    1. I have lived in for atleast 6 months
    2. and I don't claim any other property as PPR.

    I approached an accountant to clarify my situation and was advise that CGT libility will be applied from the date I move out the property as the property will be income producing  (rented out)..

    can someone please clarrify this for me…

    Thanks and Regards

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    get a new accountant!

    and before you leave tell him to look up the tax act, s 118-145 ITAA 1997
    http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of WJ HookerWJ Hooker
    Participant
    @wj-hooker
    Join Date: 2007
    Post Count: 272

    Which is why I don't use an accountant. This just reinforces my view of them.
    Problem is most people believe every word they say, even when you send them an ATO ruling.

    Profile photo of Dan42Dan42
    Member
    @dan42
    Join Date: 2008
    Post Count: 619

    Terry's right, shop around for a new accountant. From your infoprmation provided, you should be able ot use the six year rule for CGT exemption.

    Incidentally, you would be amazed as to how many accountants don't know this rule. We had a discussion in a previous workplace, and three quarters of qualified accountants didn't know the rule.

    Profile photo of ducksterduckster
    Participant
    @duckster
    Join Date: 2004
    Post Count: 1,674

    Just be aware you can only deem one house at a time as your main dwelling / PPOR.
    So if you buy another property and move into it and then deem the original property as your Main dwelling
    then the new dwelling will be not
    CGT exempt.

    The one PPOR at a time Rule.
    So if you buy another property you will pay CGT in one way or another.
    from the time you enter the contract to buy the new property and to the time when you sell the new property you will pay tax on the capital gain in the future for the new property if you deem property one to be your main dwelling (PPOR)

    PPOR – tax office likes to change terms they use it is called Main Dwelling CGT exemption now.

    Profile photo of Graeme FreerGraeme Freer
    Participant
    @freerenterprise
    Join Date: 2008
    Post Count: 47

    Chan and Naylor is recommended for property investors. Fastest growing firm of accountants in  the country because although they charge a lot they can also save you $'s.

    Graeme Freer | Freer Property and Finance
    http://www.freerpropertyandfinance.com
    Email Me | Phone Me

    Buyers Agent

    Profile photo of rabbit80rabbit80
    Member
    @rabbit80
    Join Date: 2009
    Post Count: 8

    Thanks guys ..

    its been a great help.

    This accountant was recommended by a colleague at work but I found him to be dud.. 

    Too late for this year.. So I will be looking for a new accountant next year.. :)

    I am moving into a rental property myself this weekend and will be renting my place out starting next week

    Ducster… I got a questions for you .. you said the following

    "The one PPOR at a time Rule.

    So if you buy another property you will pay CGT in one way or another.
    from the time you enter the contract to buy the new property and to the time when you sell the new property you will pay tax on the capital gain in the future for the new property if you deem property one to be your main dwelling (PPOR)

    PPOR – tax office likes to change terms they use it is called Main Dwelling CGT exemption now."

     

    I understand 1 PPOR at a time … That is not a problem..

    You specified above that the CGT is paid from the time you entered into a contract..  my understanding was CGT is paid from the time the house is settled and transfer in persons name..

    can you please clarify?

     

    I just bought an off the plan appartment as well and put a 10% deposit on it.. The construction of the house will not complete for another 3-4 year.. my plan is following.

    Rent myself till the new place is ready..

    Claim the old place as PPOR untill the new place is ready..

    Sell the old PPOR place within 3-6 months for claiming the appartment as my new PPOR.

    The benifit of doing this is that i will not be paying any CGT of the existing place and will be able to claim the new place (once ready) as my new PPOR.

     

    Is this a good approach?

     

    can someone please help and explain..

     

    Regards

     

     

     

     

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You can actually claim 2 main residences at the same time and have them both exempt – for a limited period with conditions – s 118-140 of the Income Tax Assessment Act 1997. Not sure if it would apply in this situation.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of Dan42Dan42
    Member
    @dan42
    Join Date: 2008
    Post Count: 619

    Just to clarify, Duckster is correct. CGT is calculated from contract date.

    Profile photo of rabbit80rabbit80
    Member
    @rabbit80
    Join Date: 2009
    Post Count: 8

    Dann,

    Just to clarrify, so if it take 3 years to build and I am paying CGT from the contract date, hence I own the property for more than a year and if i decide to sell it when completed , I will be able to claim 50%  discount in the CGT payment to the tax office.

    am I on the right track…

    Regards

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