A friend of mine has just bought his first IP. His accountant has told him that if he makes it his PPR for 6 months in the first 12 months of ownership he will be exempt from capital gains tax forever.
I seem to think she is getting this mixed up with the first home owners grant.
As I understand it CGT is proportioned. There is a particular rate in the period it is your PPR and if you then decide to use it as an IP later on down the track you will pay a higher rate for that period. Obviously this is all applicable when you decide to sell.
Can anybody clarify this for me?
Is his accountant Wayne Swan?
I'd be looking towards another accountant.
If he lives in it first before renting and later moves out it is possible to rent it out and retain the CGT for a period of up to 6 years. If he moves in again before the 6 year period and then out again the period starts again.
If he moved in and then out and decides not to rent it but to leave it empty then he could keep it CGT free indefinitely.
There are a few provisos.
see section 118-145 ITAA 1997
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I'd say something has been lost in translation.
If it is being rented out in the future, the maximum CGT that can be avoided is 6 years, as long as your friend does not have another PPOR at the same time. As Terry says, your friend can move back in before the end of the six year period, and this re-triggers the 6 year rule.
The '6 months' would be about the FHOG, not CGT. There is no defined amount of time that you have to live in a property for it to become your PPOR.
Thanks guys just a couple of more things,
Once you begin to rent it out are you still eligible for all the normal deductions you receive with a normal IP? i.e interest payments depreciation, repairs etc.
Also if there is no defined amount of time you have to live in a property for it to become your PPR how does it qualify as your PPR.
Corie wrote:Also if there is no defined amount of time you have to live in a property for it to become your PPR how does it qualify as your PPR.
There are a couple of tests to determine if it is your PPOR. Have you connected the electricity, gas, phone in your own name? Have you changed your address on the electoral roll, and your drivers license. Have you had your mail redirected to the new PPOR.
These type of things show your intention for the new house to be your main residence. There is no set time limit in the legislation, but I think the courts have used a period of three months as a type of guideline.
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