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  • Profile photo of ParkyParky
    Participant
    @foolio
    Join Date: 2016
    Post Count: 6

    Hi guys this is my very first post here:)

    My parents moved out of their Sydney PPOR in 2013 and leased it out immediately after. However not being switched on to the accounting side of things they did not get an accredited valuation completed at that time. Now they are looking to maybe sell the IP in the next year.

    Is it possible that they can get a retrospective & backdated valuation completed by an accredited valuation firm for the date of when they first leased out the property in 2013? Will this backdated valuation be accepted by the ATO when working out the CGT due after the sale of the property?

    Thanks so much for your feedback guys.

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Probably not 🙁

    The valuer can’t know if your parents did a reno (for example) before or after they left the property.

    My guess is that your parents are now at the mercy of the ATO 😕

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Parky,

    I don’t want to speak out of turn here, but I wondered if there might be “a way around” this. Right here, we could do with the input of @terryw as I am not an accredited adviser. But I can be a catalyst perhaps ….. ;)

    What I am thinking is this:-
    1. A person’s (couple’s) home is exempt from CGT
    2. It CAN be exempt from CGT for up to 6 years after leaving it (and it can be rented out in that time) – on conditions ……
    3. One condition to 2. is that another PPOR is not purchased – you can purchase another property, but NOT call it your PPOR as well. You choose which is your PPOR.

    Now, there is probably much more to this, and Terryw would be the one to massage the idea, but

    “What if….”

    What if your parents didn’t declare their CURRENT home as their PPOR, and continued to call the one they left in 2013 as their PPOR until it sold, or until they CHOOSE to change the PPOR nomination? I believe that this might be a LEGAL option (i.e. their choice) – Terry????

    What ramifications would/could that have on their NEW PPOR?
    Well, maybe they can CHOOSE to not call their new house their PPOR until today or even 2019 if they are keeping the old PPOR! That could mean that there might be some CGT to pay on their current home when they sell it.

    Work with the values of each, and the kind of price gains that might have occurred. e.g. if the one they bought in 2013 has been stagnant in value since 2013, get a valuation NOW, and that should “lock in” a value that can help to show any “gain” since 2013 (when considering purchase price).

    As I understand it, “YOU CHOOSE” which of your properties will be your PPOR, from what date to what date. This allows some latitude that could work in your parent’s favour.

    Do they have any plans to SELL the old PPOR, or the new home? What are the respective growth rates of both properties? Is one in an area where values grow quicker than the other? What are their incomes (both now, and then – 2013)? What is the way forward, given that “PPOR” is a NOMINATION and not designated by where you sleep?

    Someone like Terryw could sit down with them and work this through and consider ALL of the details – including, their Income NOW compared to their Income in 2013. That too can have an effect on “which PPOR to choose”.

    I’ll happily welcome any comments, even if only to tell me I have it wrong – I hope not, as I didn’t want to get your hopes up, but hey, let’s work it out together. It is an intriguing question !! ;)

    Benny

    PS By the way, I don’t ask that you share your parent’s Income, etc on here – my comments are simply to get the wheels turning, and to get you asking more questions about possibilities……

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Yes valuers actually can tell you what it would have been worth at any point in time.

    It could also be exempt from CGT for up to 6 years.

    Benny – there is no declaring of which property will be the main residence – until the sale of one of them.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Yes valuers actually can tell you what it would have been worth at any point in time.

    Cool! Didn’t know the ATO accepts such valuations. Learned something new today and it’s not even 11am. Thanks!

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Parky,
    Terry’s first answer might be what you need :-

    Yes valuers actually can tell you what it would have been worth at any point in time.

    That might be enough for you – but please don’t ignore the other option that I have brought up – it could be beneficial for your parents to work through that path. Or not – no guarantees either way.

    If nominating PPOR is a choice (as it seems to be), and a choice made on sale of one of the houses and not before, there could be quite some benefit in knowing WHICH house to nominate, based on the best result for your parents. Let them pay the legal minimum amount of Tax owing, by choosing the right house to be their PPOR.

    Hi Terry,

    Benny – there is no declaring of which property will be the main residence – until the sale of one of them.

    Wow !! THAT is good to know !!

    But that brings up another related question – I want to ask it now, as (who knows) it might also help in Parky’s situation.

    I believe in Qld we had to nominate a PPOR so they could calculate our Land Tax – this is a State impost, of course.

    Terry, is there any tie-up between the State-based nomination (for Land Tax purposes) and the PPOR nominated for the ATO (for CGT purposes)? The reason I ask, is that I felt I needed to call ONE place my PPOR with the OSR years ago. If I later sell EITHER place I have in mind, can I nominate differently THEN without running foul of any law?

    It almost seems like the State Govt wants to know which house you actually live in, while the Fed Govt’s version of “PPOR” is quite different, and the PPOR you nominate has to be a house you HAVE ONCE LIVED IN, but you don’t need to be living in it now.

    So, am I right in saying we would not be lying to nominate one place for State records, and another for Federal records?

    Thanks for your help Terry,

    Benny

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Benny

    DIfferent lawys for land tax to income tax. A property could be a main residence for CGT purposes yet not a PPOR for land tax purposes, and vice versa,

    In NSW for example it is much harder to get the PPOR land tax exemption for a property you have moved out than it is for CGT.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    You can definitely order a retrospective property valuation for these purposes – I’ve seen it done for this exact reason a number of times. :)

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
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    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of ParkyParky
    Participant
    @foolio
    Join Date: 2016
    Post Count: 6

    Thanks everyone for all your answers and I definitely will pass this info onto my parents. I had a bit of a read and their previous PPOR is also eligible for the ‘indexation method’ of calculating the CGT as it was purchased pre September 1999.

    I guess their accountant can workout what will work better for them once they sell. Now onto working out the timing of the sale which I think could be towards the end of 2018 when rates start to rise.

    • This reply was modified 2 years, 9 months ago by Profile photo of Parky Parky.
    Profile photo of BomberboyBomberboy
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    @maddychev
    Join Date: 2015
    Post Count: 11

    Now onto working out the timing of the sale which I think could be towards the end of 2018 when rates start to rise.

    Two years away??? You’re kidding aren’t you? If you mean bank rates, its already started and will accelerate much quicker in a post Trump world. My semi educated guess is 2-3% increase by end of 2018. Remember they have been called “record lows” for a reason…it ain’t normal folks and banks are used to making BIG profits….if their lending pool shrinks (and it is) you suck more out of what you’ve already got on the hook

    If you mean official rates then the increase will be slightly less and slower, but recent history shows they won’t be too far behind the banks. They’ve largely stayed low for political reasons. Now that the big 4 are doing the bulldozing the RBA can chug in behind.

    “No one ever lost taking a profit”

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Bomberboy,

    If you mean bank rates, its already started and will accelerate much quicker in a post Trump world. My semi educated guess is 2-3% increase by end of 2018.

    I can only hope you are wrong there – if not, then I foresee a LOT of pain for MANY !!

    See, going by current Bank Rates (let’s say 4% right now) then even just a 2% increase would lift your mortgage repayments by 50% !! Who can handle that? Will tenants foot a further 50% impost on their rents?

    A 3% rise over that time doesn’t bear thinking about (that is a 75% lift in real terms!!).

    With a slow economy, we cannot afford much more than a 1% rise (really 25%) over that time. But yes, I do agree these rates are ABNORMALLY low, and that they will rise again…. but hopefully SLOWLY !!

    I just hope the powers-that-be understand just how much of an impost a “0.25%” lift really is when coming from such a low base.

    Benny

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Parky,

    Thanks everyone for all your answers and I definitely will pass this info onto my parents. I had a bit of a read and their previous PPOR is also eligible for the ‘indexation method’ of calculating the CGT as it was purchased pre September 1999.

    That is a VERY important point. I always did think that the Indexation Method was a far more fair way to calculate the CGT.

    Over the last 16 years, I have seen virtually nothing of the “Indexation Rate” that used to be regularly published until the new CGT calculations in 1999 commenced. I’m sure their accountant would be a full bottle on all of that though.

    And Parky, your comment reminded me of yet another possibility – this one is from so long ago, that we tend to forget. I am one of those lucky enough to have bought my home pre-CGT (we bought in early 1984) so, on sale, we pay NOTHING in the form of a CGT. If your folks are my age, they might also have bought in a pre-CGT time (was it 1985 it started? Not sure…)

    Benny

    Profile photo of BomberboyBomberboy
    Participant
    @maddychev
    Join Date: 2015
    Post Count: 11

    I agree Benny ol mate, pain is ahead…how can it go any other way?

    Most people think 4% home loan rate is normal and will stay that way, yet not that long ago there were warnings to people borrowing at 6-7% saying factor in at least another 1-2% minimum as a buffer.

    Refer http://www.rba.gov.au/statistics/cash-rate/ and look at the graph and monthly breakdown for a history lesson. Rates dipped after the GFC (7.25% to 3% in 12mths), tried to come back slowly but there was too much caution so the RBA dropped again and again to try and stimulate the economy. It hasn’t happened and they canna give it any more Captain. …….so what now.

    I believe inflation will step up, unemployment will increase and the usual dance partner to this equation is rate rises.

    Unlike other factors, a rate rise is a rate rise, it doesn’t matter whether you’re in the Sydney market, the Perth market or even Coastal Qld where I live.

    What do you think rates will do in the next two years?

    BB (Bomber as in Essendon FC)

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi BB,

    Most people think 4% home loan rate is normal and will stay that way,

    Hmm, I dunno who THEY are !! Wouldn’t be too many on this board that think like that…..

    yet not that long ago there were warnings to people borrowing at 6-7% saying factor in at least another 1-2% minimum as a buffer.

    Can’t say I have heard of that one either. I DO recall (about 10 years ago) Steve warning that rates could go up to 8% and that people would be hurting (that would have been circa 2004 or so, and I had locked in a couple of loans at 6.1%). Steve had spoken in answer to some who were warning that “Rates could go back up to 17% like in the late 80’s….”

    Steve basically said “No – with the mortgages so much higher today, and wages not so much higher, 8% is all it would take to cause a world of pain for many.” He pretty much called 8% as “the top” back then (at lest, that is how I interpreted it).

    And, to my mind, THAT same rationale applies today – but with perhaps an even lower rate (7%?). Prices have gone even higher than in 2005 and wages have not. Interest rates thus CAN’T even get near 8% to my mind without causing a melt-down. Which Govt would sit by and watch the population implode?

    To that end, a Govt SHOULD NOT sit by while costs scream up 75% in two years. There would be rioting in the streets. So many new home buyers would be being evicted for non-payment as they are borrowed to the hilt. There CAN’T be more than a 25% increase in the next two years surely !!!

    But hey, what do the rest of you think? Is BB right? or me? Or is there a “somewhere in between” that makes sense? Let’s hear it….

    Benny

    Profile photo of ParkyParky
    Participant
    @foolio
    Join Date: 2016
    Post Count: 6

    Hi Parky,

    Thanks everyone for all your answers and I definitely will pass this info onto my parents. I had a bit of a read and their previous PPOR is also eligible for the ‘indexation method’ of calculating the CGT as it was purchased pre September 1999.

    That is a VERY important point. I always did think that the Indexation Method was a far more fair way to calculate the CGT.
    Over the last 16 years, I have seen virtually nothing of the “Indexation Rate” that used to be regularly published until the new CGT calculations in 1999 commenced. I’m sure their accountant would be a full bottle on all of that though.
    And Parky, your comment reminded me of yet another possibility – this one is from so long ago, that we tend to forget. I am one of those lucky enough to have bought my home pre-CGT (we bought in early 1984) so, on sale, we pay NOTHING in the form of a CGT. If your folks are my age, they might also have bought in a pre-CGT time (was it 1985 it started? Not sure…)
    Benny

    They purchased in early 1999 and moved out at the end of 2013. So it has been an IP for about 3 years now. Do you think generally the indexation method works out to less CGT then the 50% CGT discount?

    Also I think the RBA will cut rate 2 more times next year which will keep the property market still quite warm in Sydney at least.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Parky,

    Do you think generally the indexation method works out to less CGT then the 50% CGT discount?

    The last time I spent any time working things out like that, it was 1999, and I was trying to predict which way I might go if I needed to sell something. I don’t recall my findings from that time, but what I DO recall is that the Indexation method added just 20% of any CGT to your Income for that year to work out what Marginal Rate that took you to, and then the whole lot was taxed at THAT Marginal Rate.

    e.g. If you were owing say $50k, then $10k was added to current income. If that didn’t take you into another Marginal Tax Rate, then beauty – the whole $50k was taxed at your current rate, EVEN if the addition of $50k WOULD have brought you into a higher Tax Bracket. The Indexation also played a part, as any “today’s price” was divided by the Indexed Rate to supposedly take Inflation out of any Gain you had made.

    I don’t recall the actual maths around Indexation – I’m sure you would find them on the web – but it meant any gains were lower than actual buy/sell prices would indicate.

    Benny

    Profile photo of BomberboyBomberboy
    Participant
    @maddychev
    Join Date: 2015
    Post Count: 11

    Hi Bomberboy,

    If you mean bank rates, its already started and will accelerate much quicker in a post Trump world. My semi educated guess is 2-3% increase by end of 2018.

    I can only hope you are wrong there – if not, then I foresee a LOT of pain for MANY !!
    See, going by current Bank Rates (let’s say 4% right now) then even just a 2% increase would lift your mortgage repayments by 50% !! Who can handle that? Will tenants foot a further 50% impost on their rents?
    A 3% rise over that time doesn’t bear thinking about (that is a 75% lift in real terms!!).
    With a slow economy, we cannot afford much more than a 1% rise (really 25%) over that time. But yes, I do agree these rates are ABNORMALLY low, and that they will rise again…. but hopefully SLOWLY !!
    I just hope the powers-that-be understand just how much of an impost a “0.25%” lift really is when coming from such a low base.
    Benny

    From ABC news online today http://www.abc.net.au/news/2017-03-15/investors-to-be-hardest-hit-as-banks-reprice-mortgages/8356294

    “You know what” is about to get real people…forget what you think about Australia and migration, supply and demand, what is being built on the corner etc. Bank financing is based on global factors not Bob and Bettys term deposit and local issues….. always has been, always will.
    Bank rates are heading north and can accelerate as quickly as they came down.
    Not a bubble burster, just a realist…it wasn’t that long ago that we all thought W.A iron ore would last forever at a high price….point is we all thought the abnormal was the new normal

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Bomberboy,

    Bank rates are heading north and can accelerate as quickly as they came down.

    Can’t say I agree with you there. It “might” have been the case if rates went back up again soon after they dropped to the floor.

    But they didn’t – and we have had YEARS (almost a decade) of borrowings at ever higher vals (in some part because rates were so low) and no Govt is going to sit idly buy and watch 20% of its population fall into a hole because the rates are climbing way too fast for the economy to keep up.

    Going up – sure thing. But not SO fast….. it can’t happen – doesn’t pass the “pub test” !!

    Benny

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