Hi all,
I have a basic understanding of the CGT exemption for PPOR, however want to get some more clarification to "dumb it down" to ensure I know everything I need to know.
In 2009 my wife and I bought our PPOR in Sydney receiving the FHOG and lived in it for about 7 months before being relocated interstate for work. I am now living in Brisbane and have bought a house here to live in Jan 2012, but unfortunately have accepted a job interstate (NOT Sydney) after being made redundant last month from my last job. This being said, we are looking at selling our place in Brissy, as we can't really afford to hold onto it (it is an older house that would require constant maintenance – no good for renting unless we were nearby and could do the simpler stuff ourselves) the capital gain on this house is going to be very minimal if any, so I figure maintaining the property in Sydney as our PPOR would be more beneficial.
My questions are:
1. What expenses can be claimed against CGT (repair costs, stamp duty, legals, selling fees and costs, mortgage costs, interest?, rates? – can some of these be claimed as they cannot be a normal tax deduction as the property is not rented and if so how far back can they go, indefinite or a set number of FY?) also any others I can't think of?
2. The six year exemption for PPOR, I have been told there may be a way to"reset" this six years, is there a way to do this, or is living in it again the only way, and does this reset it or pause it?
3. If I cannot reset it, does the exemption still apply to the value of the property at the six year mark or am I now liable for CGT on the entire value after I moved out (eg: bought for 100k worth 200k when I moved out and then worth 300k after 6 years, if I were to sell for $400k would I pay CGT on $400-$200k or $400-$300k?).
Thanks guys (and gals)
John
1. Anything not otherwise claimed – light bulbs and mower fuel etc.
2. moving in and establishing it as the main residence again. Look at the legislation s118-145 ITAA 1997. It has an example in the act.
3. cost base is reset to the time it became income producing.
Note.you can only count one residence as your main residence at any one time.
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 aussieguy,
And welcome !!
I'm not a wizz on this stuff, but I had a thought or two that could help others to help you……First off, I read that you "bought PPOR in Sydney in 2009, and lived in it for 7 months". All good. Later, I see this – "so I figure maintaining the property in Sydney as our PPOR would be more beneficial". Yep, with you there too….. But then this :-
"they cannot be a normal tax deduction as the property is not rented" So, for clarification, has the Sydney place been not rented for the last 4 years? Or is there more to the story? e.g. "it was rented, but the tenants moved out xx months ago….."
As I understand it, if you haven't been renting it, and you haven't nominated your Brisbane property as your PPOR, then I believe there is no CGT to pay – end of story.
But, if it HAS been rented, then I will step back, because you will need other input from more knowledgable people like Terryw and others who know this stuff backwards.
Also, further to Terry's comment re "PPOR status" – isn't there something about "Even after 6 years (if it hasn't been rented) it can remain your PPOR with full exemption so long as you don't have someone else living in it…." (something like that – I read it in a book, so that is only hearsay, and not advice by any means – but could be worth asking the question if it applies to you and your future plans). And, of course, you don't nominate another property as your PPOR !!
Anyway, good on you for asking first – it saves a lot of anguish later !!!
Benny
Terryw wrote:you can only count one residence as your main residence at any one time.A question for you Terry:
What happens if the husband is living in Brisbane but the wife is living in Sydney. Assuming both properties were jointly owned (in both their names) would they be able to claim PPOR for both properties (as technically it is their PPOR and not being rented out) or could they only claim it for one property?
Ryan McLean | On Property
http://onproperty.com.au
Email Meryan mclean wrote:Terryw wrote:you can only count one residence as your main residence at any one time.A question for you Terry:
What happens if the husband is living in Brisbane but the wife is living in Sydney. Assuming both properties were jointly owned (in both their names) would they be able to claim PPOR for both properties (as technically it is their PPOR and not being rented out) or could they only claim it for one property?
Only 1 would be exempt from CGT per couple.
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
Benny wrote:"they cannot be a normal tax deduction as the property is not rented" So, for clarification, has the Sydney place been not rented for the last 4 years? Or is there more to the story? e.g. "it was rented, but the tenants moved out xx months ago….."
To elaborate on that part, I meant the house we are currently living in in Brisbane as normal things you would claim if renting it out, can't be claimed as the property is not income producing but rather for private use. Depending on exactly what I can claim, I may possible be able to reduce the CGT liability to 0 (if not, close to), whereas we would never be able to do it for the property in Sydney as it has been rented out since we moved out of it.
So basically to reset the 6 years, living in it is the only way, anyone who says otherwise is just being dodgy and potentially committing fraud? I am assuming if I were to move into it for a month, say over Christmas or something, pay to get the electricity and gas on in my name for that month, and then move out, that, whilst may be frowned on, would be legitimate, as I really did live there. (As obviously not claim any other residence as PPOR during this period).
At this stage end of 2009 was when we rented it out, so we have until the end of 2015 before we really need to worry, but time can fly and I want to be prepared. We are probably going to sell and buy something else newer before that time, to alleviate repair costs for an ageing property, better depreciation and most importantly access the equity in the property for reducing interest payments on our next PPOR when we buy… (pushing up the LVR for the next investment whilst lowering it for out next PPOR)
INCOME TAX ASSESSMENT ACT 1997 – SECT 118.145
Absences
(1) If a * dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.
(2) If you use the part of the * dwelling that was your main residence for the * purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.
(3) If you do not use the * dwelling for that purpose, you can treat it as your main residence under this section indefinitely.
(3A) This section does not apply if the * dwelling was your main residence because of section 118-147 and ceases to be your main residence because of subsections 118-147(3) and (4).
(4) If you make the choice, you cannot treat any other * dwelling as your main residence while you apply this section, except if section 118-140 (about changing main residences) applies.
Example: You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house.
You have not treated any other dwelling as your main residence during your absences.
You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years.
You can make this choice when preparing your income tax return for the income year in which you sold the house.
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
I'm not a wizz on this stuff, but I had a thought or two that could help others to help you……
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