All Topics / Legal & Accounting / Change of Main Residence – clarification required for CGT Exemption & 6 yr rule

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  • Profile photo of AM2778AM2778
    Participant
    @am2778
    Join Date: 2010
    Post Count: 48

    I had a PPOR in Melbourne that I purchased in June 2007. I decided to invest in Brisbane and bought a property with an investment loan in August 2015 with a 90 day settlement period; settling in October 2015.
    During the settlement of the Brisbane Property, I got offered a job in Brisbane. I decided to move into the Brisbane Property (New PPOR) and rent out my Melbourne Property (IP; former PPOR).
    Now I’m living in Brisbane (my new PPOR) and my Melbourne Property (IP; former PPOR) is rented out.
    I have the following Loan Structures:

    Melbourne Property
    o Westpac-Loan Account #1 with Melbourne Property as Security.
    o Westpac-Loan Account #2 as LOC on Melbourne Property as Security
    o Westpac-Savings Account as Offset against Loan Account #1

    Brisbane Property ( Deposit paid using Savings from Westpac Offset Account)
    o CBA-Loan Account #1 with Brisbane Property as Security.
    o CBA-Savings Account as Offset against Loan #1

    1. Do I have to sell the Melbourne Property for CGT exemption?
    2. In my situation, does the INCOME TAX ASSESSMENT ACT 1997, SECTION 118-140 & SECT 118.145 Changing main residences & 6 year PPOR GCT exemption apply?
    3. What options do I have to maintain CGT exemption?
    Basically, I don’t want to sell the Melbourne Property as I bought it at a very low cost and it’s a good asset with great potential.
    Any Taxation advice and recommendations would be much appreciated.

    Many thanks
    AM

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

    1, no
    2. s118-145 yes, s118-140 only applies if selling
    3. live in one

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of AM2778AM2778
    Participant
    @am2778
    Join Date: 2010
    Post Count: 48

    Thanks Terry.

    So, I’m currently living in Brisbane. Thats my current PPOR.

    With the my former PPOR, now IP, I need clarity on the following:

    1) Can I claim tax deductions for the expenses incurred for the Melbourne Property Rental?
    2) In the event that I do decide to sell the Melbourne Property, will I be paying CGT?

    Many thanks
    AM

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

    1. once it is available for rent
    2. depends. You will only be able to claim one of the houses as the main residence and get the exemption. So you would generally reassess things in a few years and see which one has grown the most.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Terry,
    In respect of this answer:-

    2. depends. You will only be able to claim one of the houses as the main residence and get the exemption. So you would generally reassess things in a few years and see which one has grown the most.

    I had previously heard that this “nomination of PPOR” can take place like you said – years after the fact, and you may choose which one to go for.

    But then, in my own situation, I had the State Govt requesting I nominate my PPOR so that they knew which house to exempt for Land Tax. So where does that leave us in the above situation (where we want to “hold off nominating a PPOR”? Is there a way where we can satisfy both State and Fed while still holding off on the PPOR nomination?

    Interested to hear the answer, and thanks in advance,

    Benny

    Profile photo of AM2778AM2778
    Participant
    @am2778
    Join Date: 2010
    Post Count: 48

    So I decide to sell the Melbourne Property and nomianate that property as my PPOR. the sale proceeds will be CGT exempt.

    What if, after 2 years, I decide to sell my Brisbane Property that I’m currenytly residing in. Will the sale of the Brisbane Property be subject to CGT?

    Thanks
    AM

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

    Hi Terry, In respect of this answer:-

    2. depends. You will only be able to claim one of the houses as the main residence and get the exemption. So you would generally reassess things in a few years and see which one has grown the most.

    I had previously heard that this “nomination of PPOR” can take place like you said – years after the fact, and you may choose which one to go for.
    But then, in my own situation, I had the State Govt requesting I nominate my PPOR so that they knew which house to exempt for Land Tax. So where does that leave us in the above situation (where we want to “hold off nominating a PPOR”? Is there a way where we can satisfy both State and Fed while still holding off on the PPOR nomination?
    Interested to hear the answer, and thanks in advance,
    Benny

    Land tax is a whole different situation. A house could be you main residence for CGT purposes (commonwealth law) but not for land tax purposes (state law) or vice versa.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    So I decide to sell the Melbourne Property and nomianate that property as my PPOR. the sale proceeds will be CGT exempt.
    What if, after 2 years, I decide to sell my Brisbane Property that I’m currenytly residing in. Will the sale of the Brisbane Property be subject to CGT?
    ThanksAM

    if you sold it within 6 years of moving out then yes it could be exempt. But your new one will be subject to CGT.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of crjcrj
    Participant
    @crj
    Join Date: 2004
    Post Count: 618

    So I decide to sell the Melbourne Property and nomianate that property as my PPOR. the sale proceeds will be CGT exempt.
    What if, after 2 years, I decide to sell my Brisbane Property that I’m currenytly residing in. Will the sale of the Brisbane Property be subject to CGT?
    ThanksAM

    You couldinthis case add to the cost base of your Brisbane property expenses relating to that property that you have not claimed as deductions eg interest, rates, insurance

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

    Good point CRJ and these costs will add up over time.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of AM2778AM2778
    Participant
    @am2778
    Join Date: 2010
    Post Count: 48

    I understand. So in summary:

    1) When I sell the Melbourne property within the 6 year period, the sale event will be CGT exempt.
    2) The new PPOR in Brisbane will be subject to CGT (if and when i decide to sell it).

    What if, after a couple of years of selling the Melbourne property (for which the sale was CGT exempt), I decide to do the following:

    1) convert the PPOR in Brisbane in to an IP and rent it out.
    2) buy a new PPOR in Brisbane from the sale proceeds that I got from selling the Melbourne Property. Will this property be CGT exempt when I do decide to sell in the future?

    Many thanks
    AM

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

    1. could be exempt if you choose (optional)
    2. If you choose to exempt the melb one

    2. Any new main residence could be exempt.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Profile photo of AM2778AM2778
    Participant
    @am2778
    Join Date: 2010
    Post Count: 48

    Thanks Terry. You have been very helpful and informative.

    AM

    Profile photo of PeterPeter
    Participant
    @pjhawk
    Join Date: 2016
    Post Count: 2

    Its one of those things that can change depending on how the property market moves and you would really only need to decide when the 6 years is up or when you sell, if within 6 years. I would get a market valuation on Melbourne when you move out, as it ceases to be your PPR so CGT would only be on the increase after it ceases to be your PPR – so get a good high valuation. You can chop and change which is the PPR to give you the best CGT position, but you wont know this until you actually sell.

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

    Peter is correct.
    You need a valuation ( paid for to registered valuer not free real estate quotes) for your Melbourne property as that becomes the starting point for any future CGT.You have up to 6 months leeway.
    Your price paid for the Brisbane house is your starting price for it for any CGT ( if you decide to nominate it as investment ).
    Prices need to be adjusted of course for purchasing costs, selling costs etc. NOW is the best time to record all this information whilst you remember them and have documents.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    You need a valuation ( paid for to registered valuer) = Not quite correct.

    The ATO specify “PREFERABLY be undertaken by a suitably qualified and experienced person in relation to the asset being valued”.

    Cheers

    Yours in Finance
    0-40 Properties in a decade.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of AM2778AM2778
    Participant
    @am2778
    Join Date: 2010
    Post Count: 48

    One last thing – what are the thoughts around this

    – If you sell the old home within 6 months of purchasing the new home – both properties are covered by the main residence exemption;

    In my case, if I sell the Melbourne property within 6 months of the purchase of Brisbane property then:
    1) Melbourne property sale proceeds will be CGT exempt
    2) When I do decidde to sell the Brisbane property, then the sale proceeds from the Brisbane property will also be CGT exempt.

    Please provide clarification.

    many thanks
    AM

    • This reply was modified 5 years, 3 months ago by Profile photo of AM2778 AM2778.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Yes that is right AM.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of AM2778AM2778
    Participant
    @am2778
    Join Date: 2010
    Post Count: 48

    Thank you very much for the clarification.
    Very much appreciate the information thats been provided.

    Regards
    AM

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