Forums / Getting Technical / Legal & Accounting / CGT / PPOR Discrepancy

Viewing 4 posts - 1 through 4 (of 4 total)
  • Profile photo of Josh DubbinJosh Dubbin
    Participant
    @waspman
    Join Date: 2007
    Post Count: 2

    Hi,

    I purchased a house in 2014 with the intention of knocking it down and building a duplex (one for myself to live in, one for a family member to live in / long term investment).

    As my family was living in a rental property at the time of the purchase, I decided to lease the property while I had the plans go through council, waiting for approval etc. This was so we wouldn’t move house into the newly purchased property, and then have to move out again when it was to be demolished. The place was tenanted for maybe 6 or 7 months, and then we terminated the lease, demolished the house and built the duplex.

    Being a naive first time builder, I did not realise how many extra costs there are associated with building, as well as other costs blowing out. Top this off with my wife losing her job, and we found ourselves in a dire situation (having to borrow large amounts of money from family members so we could continue to make the mortgage repayments – when we were still months away from completion).

    When the building was “practically completed”, and we had an interim occupation certificate, we moved into one side of the duplex, and leased the other side, giving us some much needed cash flow so we could finish off the minor items required to obtain final occupation and stopping us from haemorrhaging money every week. We also commenced the lengthy and expensive process of strata subdivision while we had tenants.

    My wife and I found ourselves in a bit of a situation – we were living in this great new house, but even with tenants paying decent rent, we were only just able to pay the interest only mortgage.

    When the tenants lease was up, we sold the side of the duplex we were living in, and moved next door. Thanks to the growth of Sydney property prices during the time of our build, we got a great price on the sale, and our mortgage became manageable again.

    Our accountant has advised that because we did not move straight into the original dwelling, we do not have PPOR status on the property until the build was completed and we moved in, therefore we have a significant CGT liability. Most web searching that I have done tells a similar tale, however I thought I would post our story to see if any of you have been in a similar position before and may have some advice or some way of proving that PPOR can still be claimed in this situation.

    Sorry for the long winded tale, thanks for reading and thanks in advance to anyone who replies.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    I think it could be worse. The main residence exemption doesn’t apply where the property is held on revenue account even if you were living in it. Your intention at purchase was to buy build and sell and you took actions in this regard.

    There is also no 50% cgt discount in these situations.

    Also considered GST?

    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 Josh DubbinJosh Dubbin
    Participant
    @waspman
    Join Date: 2007
    Post Count: 2

    Hi Terry, thanks for your reply.

    The intention from the start was buy, build, hold. Unfortunately our circumstances changed and we had to sell one in order to afford to keep the other one.

    With regards to GST, I have a private ruling stating that GST is not payable.

    I was hoping someone might have replied with how they were able to avoid CGT in a similar situation, but it looks like I am out of options on that one. The advice I have received is that the 50% discount will apply as we have held the property for over 12 months.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    If it is being held on capital account then your accountant is correct. You cannot claim the main residence exemption under after it becomes the main residence.

    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/

Viewing 4 posts - 1 through 4 (of 4 total)

You must be logged in to reply to this topic.