Viewing 20 posts - 1 through 20 (of 50 total)
  • Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    Hi all,

    I purchased a house in Nov 2009

    Lived in it for 18 months to April 2011

    Been rented since then.

    I expect my capital gain will be c.$1,000,000

    If I was to sell it as of today how would the CGT be calculated?

    I have effectively rented it now for 4 months over the 6 year timeframe.

    Would the taxable gain be $1m *.5 * (4m/96 months ive held for total)?

    I am genuinely considering moving back to live in this house to avoid capital gains.

    If I move in and move back out does the 6 years reset? If not, the cgt calculation would surely become so messy no?

    • This topic was modified 2 years, 11 months ago by Profile photo of propertyboy propertyboy.
    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Best consult with your accountant to gain specific advice but my guess is that you’ll pay 50% CGT on the capital gain from when the 6 years ended to the sale date (shouldn’t amount to too much, I reckon?)

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
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    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 TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Here is an article I wrote a while back:

    The short answer is that you get some CGT relief as the period subject to CGT is apportioned.

    Example
    Bic Dong purchased a home in 2000 and moved in straight away. It is a small residential block and is his main residence and only property.

    On 01 Jan 2004, Bic moves out. He ends up renting a property while renting out his main residence. Mr. Dong then sells the property in 2015.

    What happens with the main residence exemption? Because Dong was absent for more than 6 years – he was away for 11 years in total.

    Bic must first work out the value of the property when it was first used to produce income which occurred on 01 Jan 2004. He can do this by employing a valuer who will estimate what it was worth back at that point in time.

    Then he must work out how long the property was rented for (in days to be exact). 2004 to 2015 is 11 years (approx.). 6 of those 11 years are able to be counted as the main residence. Therefore 6/11th of the gain will be exempt and 5/11ths will be subject to tax.

    Let’s add in some values:

    2000 $200,000 purchase price

    2004 $300,000 value at the date he moved out

    2015 $800,000

    The capital gain to work the tax out on is $800,000 – $300,000 = $500,000

    Some expense can be used to reduce this – agents fees on sale, conveyance on the sale etc, but not stamp duty on the purchase or other purchase costs because Bic is deemed to have acquired the property in 2004 at its value then (s118-192 ITAA97). Also, capital works deductions would need to be added back.

    Assuming all these amounts to $30,000 the gain would be $480,000

    Then the 50% CGT discount will be applied. $480,000 x 50% = $240,000

    Only 5/11ths of this would be taxable = $109,090

    $109,090 is the taxable gain that would be added to Bic’s other taxable income for the year. The maximum tax he would pay on this would be $53,454 but he may pay much less if his other income was very low.

    Had Bic moved back in before 01 Jan 2010 and then later moved out again, he would not have paid any CGT tax. He didn’t do this because he didn’t want the hassle of having to move.

    Had Bic decided not to keep claiming the property as his main residence after moving out (e.g. because he claimed another property) then the cost base for CGT purposes would have been the value at the time of moving out which was $300,000

    The CG would have been $800,000 – $300,000 = $500,000

    Reduce this by the selling costs of $30,000

    $480,000 gain

    $240,000 after applying the 50% CGT discount because held longer than 12 months.

    Tax would be less than $240,000 x 49% (top rate plus Medicare) = $117,600

    See

    ATO ID 2003/1113
    Income Tax
    Capital gains tax: main residence exemption – interaction between the ‘absence’ rule and the ‘first used to produce income’ rule
    ATO ID 2003/1113 – Capital gains tax: main residence exemption – interaction between the ‘absence’ rule and the ‘first used to produce income’ rule

    Section 118-192 of the Income Tax Assessment Act 1997
    INCOME TAX ASSESSMENT ACT 1997 – SECT 118.192 Special rule for first use to produce income

    Section 118-145 of the Income Tax Assessment Act 1997
    INCOME TAX ASSESSMENT ACT 1997 – SECT 118.145 Absences

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    “Had Bic moved back in before 01 Jan 2010 and then later moved out again, he would not have paid any CGT tax. He didn’t do this because he didn’t want the hassle of having to move.”

    Say Bic moved back in before 1 Jan 2010 then moved back out again on 1 Jan 2012 is he CGT exempt?

    Wouldn’t he have to pay tax on 2/8th of the gain?

    I thought you only get 6 years in total as exemption? Or is it 6 year intervals based on the last time you lived in the house.

    Reason I ask is because:

    1. I purchased a house in Nov 2009

    2. Lived in it for 18 months to April 2011

    3. Rented it out for another 2 years to April 2013

    4. Then lived in it for 6 months from April 2013 to October 2013

    5. Has now been rented ever since October 2013.

    Does that mean if I move back in by October 2019 and sell it I will be CGT exempt? Eventhough in this scenario in total I have rented it out for more than 6 years but my final interval is less than 6 years if I sell before October 2019.

    • This reply was modified 2 years, 10 months ago by Profile photo of propertyboy propertyboy.
    • This reply was modified 2 years, 10 months ago by Profile photo of propertyboy propertyboy.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Bic could be totally exempt.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of James MavJames Mav
    Participant
    @jamesmav
    Join Date: 2014
    Post Count: 7

    Hi Property boy,

    If you move in prior to the six year period ending, the six year exemption rule is effectively re-set and you will receive another six years from the time you have moved out.

    In order to prove you moved in again ATO may ask for any of the following (with the address on each as the property in question):

    -Drivers license
    -Utilities
    -Medicare/private health
    -Voting registry
    -Car registrations
    -Insurances
    -Mail redirection
    -Bills etc

    The only caveat being you cannot live in the property and rent out part of the property (ie a room), you must live in it solely.

    If no longer than 6 years has elapsed since the time you moved out and the time you moved in again, you will not pay any capital gains (assuming the property is your MPR).

    Hope this helps.

    James Mav – accountant
    ______________________________________________________________________________________
    http://www.accountancymatters.com.au

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi James,

    The only caveat being you cannot live in the property and rent out part of the property (ie a room), you must live in it solely.

    Isn’t there another caveat – that they don’t buy another PPOR (i.e. they rent elsewhere) while their PPOR is rented out??

    Benny

    Profile photo of James MavJames Mav
    Participant
    @jamesmav
    Join Date: 2014
    Post Count: 7

    Hi Benny,

    This is assuming the property is your MPR (as is assumed in brackets at the end of my quote).

    The only caveat being you cannot live in the property and rent out part of the property (ie a room), you must live in it solely.

    If no longer than 6 years has elapsed since the time you moved out and the time you moved in again, you will not pay any capital gains (assuming the property is your MPR).

    However if we are not assuming the property is his main primary residence, and he buys another house, he can only choose one property to be his main primary residence at any one time.

    Hope this helps.

    James Mav – accountant
    ______________________________________________________________________________________
    http://www.accountancymatters.com.au

    Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    Are you sure the 6 year period can be reset?

    https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence/Treating-a-dwelling-as-your-main-residence-after-you-move-out/

    If you read the example of Rami, it appears you only get 6 years in total. Not unlimit d 6 year intervals on the basis you move back in within 6 years.

    • This reply was modified 2 years, 10 months ago by Profile photo of propertyboy propertyboy.
    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Propertyboy,
    The reason Rami didn’t get a new 6-year exemption is that he DIDN’T move back into the place. The words quoted show that:-

    Rami was posted by his employer from Brisbane to Melbourne for three years and settled a contract to buy a townhouse in Melbourne. He did not return to his Sydney apartment at this time.

    Had he returned to his apartment after finishing up in Brisbane, then I believe the 6 years exemption would have started again. But he finished up in Brisbane on 31 Dec 1999, and was sent straight to Melbourne without returning to live in his home.

    Benny

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi James,

    This is assuming the property is your MPR (as is assumed in brackets at the end of my quote).

    You are right! I missed it, as I was unaware of the acronym “MPR”. I know the term as PPOR – Principal Place of Residence? Was the change to MPR (Main Primary Residence) a recent change?

    And isn’t “main primary” tautological? I wonder who thought up that darling?

    *confused*

    Benny

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

    Are you sure the 6 year period can be reset?
    https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence/Treating-a-dwelling-as-your-main-residence-after-you-move-out/
    If you read the example of Rami, it appears you only get 6 years in total. Not unlimit d 6 year intervals on the basis you move back in within 6 years.

    Yes the 6 year rule can be reset if a person moves back again. Look at the actual legislation and the example given:
    http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s118.145.html

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

    Hi James,

    This is assuming the property is your MPR (as is assumed in brackets at the end of my quote).

    You are right! I missed it, as I was unaware of the acronym “MPR”. I know the term as PPOR – Principal Place of Residence? Was the change to MPR (Main Primary Residence) a recent change?
    And isn’t “main primary” tautological? I wonder who thought up that darling?
    *confused*
    Benny

    I have never seen MPR either. In commonwealth tax it is known as the main residence (since 1997) and NSW tax it is called the Principle place of residence.

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

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

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Terry,

    Thanks so much for that link to the legislation. Personally, I found that MUCH easier to read than those earlier examples. It was clear, unequivocal, and easy to understand. I think I will store that link as a Favorite !!

    The only area that is less clear (for me) is 3A where they refer to other “sections”…

    Benny

    Profile photo of KingKing
    Participant
    @jaydenwalter
    Join Date: 2016
    Post Count: 17

    Hi Terry

    Just wanted to confirm. The example in your link, would they be exempt from CGT when he sold the property, or would 4/6 of the capital gains be subject to CGT?

    Thanks

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

    Hi Terry
    Just wanted to confirm. The example in your link, would they be exempt from CGT when he sold the property, or would 4/6 of the capital gains be subject to CGT?
    Thanks

    To be sure we are talking the same thing, can you copy and paste the example?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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

    I think this may be the one King referred to which is in the legislation:
    =
    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.
    =

    Yes this main residence could get the full exemption – provided it meets the other requirements.

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

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

    Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    Terry thanks so much for the link – it was very helpful

    Is there a minimum period you have to move back in for the 6 years to be reset.

    In my situation.

    1. I purchased a house in Nov 2009

    2. Lived in it for 18 months to April 2011

    3. Rented it out for another 2 years to April 2013

    4. Then lived in it for 6 months from April 2013 to October 2013

    5. Has now been rented ever since October 2013.

    Does my 6 years run through to October 2019 now? Or is the 6 month period I moved back in at step 4 not enough for it to reset?

    I have not owned any other houses so no other PPOR throughout this whole period

    • This reply was modified 2 years, 10 months ago by Profile photo of propertyboy propertyboy.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    There is no minimum requirement to live in the property, but it must be reestablished as the main residence again. You property could possibly exempt from CGT if you sold before Oct 2019.

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

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

    Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    I was looking for evidence to prove I was living as my main residence at point 4 because if I can’t prove this I would potentialy have a big cgt liability as my 6 years will be hit now

    4. Then lived in it for 6 months from April 2013 to October 2013

    I have found gas, electricity, water and internet bills in my name. Is this sufficient?

    I had the address at my POBOX address but the bills were in my name. Is this going to cause me problems?

    • This reply was modified 2 years, 10 months ago by Profile photo of propertyboy propertyboy.
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