Hi Guys,
I have just bought my first home and have a question about “Treating a dwelling as your main residence after you move out” – ie: the 6 year rule.
I plan to live in it for 2 years (as my PPOR) and then move out. I know I can use the dwelling to produce income (ie: rent it out) and treat it as my main residence for up to six years after I cease living in it and still get full CGT exemption if I sell it within this period (note: I will not be using it to generate income prior to me moving out).
Here’s my question – while I’m not living in it and renting it out. Can I claim the interest on my loan as a tax deduction and still be exempt from the CGT if I sell within the 6 year period?
I’m sure the answer is really obvious, but I’m new to this.
Cheers,
You should be able to claim all the normal deductions if it is available for rent.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes. Claim interest, rates, insurance etc against the rent.
The rule applies as long as you don't buy another property and claim it as a PPOR as you can only claim one at a time (well there is a 6mnth exemption).
Move back in for a while then you can do it all again.
Seems to be working well for me,
get a depriciation report done to maximise your paper losses.
claim: interest, depriciation, council rates, water rates, insurance, maintenance, management fees etc.
(keep all receipts relating to your property, go to a switched on accountant)On this topic, would someone be good enough to clarrify amount of CGT payable on a PPOR? I am still trying to understand the extents of the term "CGT Exemption". Does the full exemption mean only 50% of the bought to sold price is taxed? Or does the full exemption mean 100% CGT free?
Reason why I ask; my partner and I are currently building our first home, which we intend to live in for 12months. At that point, if we sell, will we need to pay any CGT on what gain is made on the sale? Would appreciate some input here as this will determine whether we sell straight up, or lease out.
Main residences are generally exempt from CGT.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
walt_k wrote:On this topic, would someone be good enough to clarrify amount of CGT payable on a PPOR? I am still trying to understand the extents of the term "CGT Exemption". Does the full exemption mean only 50% of the bought to sold price is taxed? Or does the full exemption mean 100% CGT free?Reason why I ask; my partner and I are currently building our first home, which we intend to live in for 12months. At that point, if we sell, will we need to pay any CGT on what gain is made on the sale? Would appreciate some input here as this will determine whether we sell straight up, or lease out.
It means 100% CGT free.
There are a whole host of variations to this. There has to be a house on it to claim the exemption – you can sell a vacant block CGT free in most cases. The exemption can be extended to vacant land (as in your case) assuming you built within 4 years and moved in. You can only have one main residence at any point in time. It is not fully exempt if part of the home has "income producing purposes" like a home based business or you rented out a room to a boarder.
But sticking to a plain vanilla situation – no CGT on your main residence.
Btw, the 50% discount you mentioned applies to all non-main residence properties held over 12 months.
Thanks Jarrod – much appreciated. In our case we are definately building a house (was a condition of land purchase).
Now the interesting decision we need to make, is whether we sell straight away CGT free (approx 450k profit), or lease out +ve geared (approx 50k/year). Any thoughts here? I was going to run the figures in excel but I'm not sure when CGT will kick in, and how much etc.
Depends on your situation.
Do you need the $450K to build your new PPOR? That would make a huge dent in your loan. Are you young and need a low home loan to start a family?$50K per year is nice. What's your wage? Is the house in both names? If you have a decent wage that will be taxed at 30-50%. If one is not working 1/2 will attract little tax. If you keep the house what is the likely CG in the future? If you wanted for example to both work part time to have a family this would be a good option.
Too many variables to give more answers.
Great position to be in either way. Well done!Thanks for your insights Catalyst. Some of your questions answered below to paint a better picture of our situation;
Catalyst wrote:Depends on your situation. Do you need the $450K to build your new PPOR?No, the $450k is approx the clear profit if we sell after 12months of living in our PPOR. Total cost of build, including land cost is around 800k. We have 10% down on this, and our loan is I&P. Current market value (once built) will be circa $1.1-1.2M.
Catalyst wrote:$50K per year is nice. What's your wage? Is the house in both names?Our combined wage is about $195k (almost split equal). The house is currently only in my partner's name, but if we started leasing it out after we lived in it for 12months, it would be in both our names.
Catalyst wrote:If you keep the house what is the likely CG in the future?This is the unknown. I wouldn't count on much CG. The focus of keeping it would be to enjoy the high +ve cash flow. This is where we are getting a bit lost….should we sell straight up, or lease out?
Cheers
WaltWalt,
What state is the house in? It is not so easy to change names on title, although it may probably be stamp duty exempt from one spouse to 2 you would have to change and reapply for the loan on the property.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Walt, could you sell the house and then buy land and build again with the same profits?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry – Building in W.A. Loan is split 50/50 with my partner and I. All costs associated with this property have been split 50/50.
As Terry said. How will it convert to be in both names?
That's a lot of tax to pay on the CF.
What I meant with needing the $450K for new PPOR was- are you going to buy/build a new PPOR? do you have the money for that? Otherwise you are borrowing to buy/build the new PPOR and that loan has no tax deductability.
walt_k wrote:Hi Terry – Building in W.A. Loan is split 50/50 with my partner and I. All costs associated with this property have been split 50/50.Get some advice on this as generally Only the name on title will be able to claim deductions.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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