PPOR, Dual Occupancy & CGT- not the typical question.

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JB111
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@jb111
Join Date: 2012
Post Count: 7
June 1, 2012 - 3:17 am
Hi,
I'm wondering if I can get some advice on my personal situation.
Purchased a house say 10 years ago.
Live there on and off, but no more than 6 years of rental.
I plan to build a house at the rear of the property- lets call it new house.
Once completed I will subdivide and sell the existing house at the front, and then move into the new house.
I understand I will not pay CGT on the front house as it has been my PPOR.
Question is- when I sell my new house in say 10 years and it has been my PPOR during that time, is any CGT applicable on the sale?
If so, what is a fair way to calculate the cost base?
Logically I don't believe I should be subject to CGT as really, at no time has the back property been an investment, but then again the ATO won't always accept logically.
bigblueit
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@bigblueit
Join Date: 2010
Post Count: 5
June 22, 2012 - 3:55 am
There is no CGT applicable on the new property (your current PPOR in 10 years’ time). As you say, it is not an investment property and is your current PPOR and therefore no CGT is payable.
I have done something in a very similar situation to yourself but over a 3 year period, from initial purchase to completed development.
These sorts of Dual Occs are in heavy favour due to the tax benefits vs other development projects, however only if you are willing to live through the development i guess.
JB111
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@jb111
Join Date: 2012
Post Count: 7
June 22, 2012 - 4:27 am
Hi bigblueit,
Thanks for sharing your thoughts on it… my only concerns is what we think is 'right and logical' , the ATO may have a different view.
Have you sold both subdivisions without any issues? Your accountant and ATO didn't raise any eyebrows?
If you are correct, and I certainly hope so, I agree there are great tax benefits.. and due to this, I'm concerned the ATO may close this little loop hole.
I'm building the back house at the moment and wow, the building cost for an additional dual occupancy house is extraordinary high compared to a single house on a block…
But if I can get the tax exemption, perhaps I may do it again in future.
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
June 22, 2012 - 6:24 am
Did you live in the original PPOR before renting it out? And while renting it out did you ever have another main residence?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
JB111
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@jb111
Join Date: 2012
Post Count: 7
June 22, 2012 - 6:44 am
Yes, I did live in there for a year or so and then rented it out for less than 6 years, and have lived in there for the past 3 years.
Have not owned another property ever.
So the house as is can be sold CGT free.
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
June 22, 2012 - 6:52 am
You might want to look at the PDS docs on how not to be a developer on http://www.bantacs.com.au
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
JB111
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@jb111
Join Date: 2012
Post Count: 7
June 22, 2012 - 7:07 am
Hi Terryw,
Yes I have gone through that website and in particular that document and the section 'Purchased To Use As Your Home', and from what I read, it still doesn't accurately reflect what my situation.
I understand I can sell the existing house CGT free, but it's blurry (to me anyway) if the new house will be exempt from CGT from the time I purchased it or only from the time I sell the existing house.
Can you give your opinion Terry?
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
June 22, 2012 - 7:12 am
Well, I haven't really looked into this before.
I would imagine once the land is subdivided then only one of the blocks will be CGT free. So if you sell one immediately it may be CGT free and if you live in the other immediately it may be CGT free because it is your main residence.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
JB111
Participant
@jb111
Join Date: 2012
Post Count: 7
June 22, 2012 - 7:23 am
Terry,
Yes I agree with you, but still unsure if the ATO will give the same CGT exemption for the front property as they do for the rear property from the date of purchase until the date of subdivision.
I haven't read anything that applies to my situation, but have found plenty of info on people who subdivide, continue to live in the old house and sell the new house.