I own the 3 acre farm (non urban zoning- non working farm-mostly just an estate – no plants or veggies- no commercial or farming nature) in Sydney, in area that is recently approved to future subdivision and is about 2 km to nearby subdivided areas with close by schools, shops, transport. But it might take years, Council plans suggest 5 years.
I have paid my ex, his share taking $370,000 loan on single (relatively low) income. Farm valued 5 years ago $1,2 mil, and today maybe $850,000.
Since I cannot afford to live in the main house, I obtained 6 years CGT exemption living away from main residence and rented it out, paying my rent elsewhere on small flat.
The rent is around $20,000 a year, and loan interest anywhere between 5.6% and 9%, on top is Land tax, depending on the land value, from $11,000 to $6000, due to single owner over threshold and renting. So I am in negative gearing. The search for registered primary producer tenant, to avoid LT was successful only one year.
After 6 years of continued renting, I need to move back in and stop renting out, or if continue renting out, I am to incur potential CGT in sale event inclusive of 6 years that I otherwise have had exemption for. I will not be able to cope with repayments if I move in.
What was our asset and lifestyle, maybe is liability today for me.
Question:
Do I hold to it and keep pouring my wages to top up loan and other costs knowing that if value pulls up, I might be having CGT exempt profit that might be greater than if invested in other assets.Do I sell in the slump time, take loses an buy my preference- Commercial property with decent 7-8% net return, which will be positively geared and increase in value but potentially less value increase than subdivided land?
Do I take even more loan and put one or two de-mountable houses with separate entries and fenced areas and rent them out too? 2 or 3 rentals will put in positive gearing, but needs to be rented out longer term- cost wise, and I have only 3 years of CGT exemption. Also, it will not be CGT exempt if any new buildings put, so I should remove demountables, prior to selling.
Any suggestions, thanks, AnieAre you sure you are not exemption from land tax
see LAND TAX MANAGEMENT ACT 1956 – SCHEDULE 1A
http://www.austlii.edu.au/au/legis/nsw/consol_act/ltma1956173/sch1a.htmlTerryw | 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
Its a difficult situation. Ideally you could move in for a brief period and then out again to maintain the CGT exemption and then sell later when prices rise again. But you don't want to get to the point where you can't afford it and over stretch it and then have to do a firesale.
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
My first thought when reading was the same as Terry’s, I thought PPOR was exempt from land tax.
Is selling half the property (or just 1 acre) now an option under the current zoning laws to reduce your debts and retain the rest for full subdivision later?
Under current zoning I cannot subdivide yet at all- I would do it if I can.
When suburb is released for residential blocks subdivide, maybe then, even though might be better to accept developers offers- historically $1 mil per acre, down my road where is already done.
If I move in briefly after 6 years of renting it, with intent to rent it out again applying another 6 years living away, I cannot start with other CGT exemption- my understanding is that can be applied once only in total of 6 years.Re: land tax- Terry thanks for posting LT act.
Owner is exempt if owner lives and not has business activity on land.
If I receive reasonable income from renting more than 6 months in a year, I do not have exemption, unless rented out for specific tenants, like qualified primary producers.
There is high tenant interest for using land to produce income, but people do not do that in business-like manner, or if they do, they prefer not to be registered to ATO and LTO as primary producers- what is the criteria for approval.
Currently I rent out less than 1 acre, while 2 acre is advertised for rent available for primary producer, without luck so far.
I spoke with LT Commissioner, as 31/12 tenancy status determines LT liability for next year. I asked, if the most of the land is not rented out and is available at at end December, and LT is due to renting land, am I still liable?
He said yes , as there is no provision in the act to separate proportion of the land used by tenant, from vacant part available to rent, to reduce LT liability- in their books it is treated as one lot.
Same would happen if I rent part of the house only and live in part- I would incur LT and CGT for half off.If you look at the Act a cursory glance indicates that there might be a possibility of an exemption for up to 6 years as a PPOR if you do not own and live in another property. Suggest you talk to someone expert in land tax outside the Land Tax office
Hi
I think this is the relevant section from the Act linked above, Schedule 1A:
(7) Income may be derived from the use or occupation of the former residence in a tax year if:
(a) the income is derived from a lease, licence or other arrangement under which a person has a right to occupy the former residence and the total period for which any such right of occupation is conferred does not exceed 6 months in the tax year, or
(b) the income is derived from any arrangement under which a person occupies the former residence, but the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence.
—-
I think if you had a lease of 6 months then you may fall within these guidelines. After the 6 months is up issue another 6 month lease may still be allowable.
I agree with crj you should speak to an expert and land tax as it could save you a fortune.
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
LT Act mentions 6 y exemption if:
owner lives elsewhere and does not own other property, and does not rent out more than 6 months a year for reasonable rent. The property is of the nature to interest families and no good tenant wants to rent for only 6 months in a year, nor I could afford to have it vacant other 6 months.Other 6 months, the rent should cover only owner’s costs as mentioned. If I charge only to cover them, I will have nothing to cover part of the loan. I tried to make a deal with the tenant to pay more the first 6 months and less other 6 months, what led to blackmails from tenant as they wanted to get into issues for their benefit. LTO also looks why the rent is distributed per months and if it is genuine.
Do you think that lease agreement 6 by 6 months has any weight?
Tax return still shows whole year rental.I do need to ask expert LT advise.
Any suggest re: potential CGT if I exceed 6 years of renting out? I have no object to pay taxes when I am due and can afford, but in this case, CGT could be higher than any rental benefit.I read somewhere that un-developed land near a development zoned neighbourhood is being charged a development charge to pay for the infrastructure required for development. Even though the property may be a farm or large acre.
This was happening in Victoria not sure what other states are doing.anie wrote:LT Act mentions 6 y exemption if: owner lives elsewhere and does not own other property, and does not rent out more than 6 months a year for reasonable rent. The property is of the nature to interest families and no good tenant wants to rent for only 6 months in a year, nor I could afford to have it vacant other 6 months. Other 6 months, the rent should cover only owner's costs as mentioned. If I charge only to cover them, I will have nothing to cover part of the loan. I tried to make a deal with the tenant to pay more the first 6 months and less other 6 months, what led to blackmails from tenant as they wanted to get into issues for their benefit. LTO also looks why the rent is distributed per months and if it is genuine. Do you think that lease agreement 6 by 6 months has any weight? Tax return still shows whole year rental. I do need to ask expert LT advise. Any suggest re: potential CGT if I exceed 6 years of renting out? I have no object to pay taxes when I am due and can afford, but in this case, CGT could be higher than any rental benefit.Might still be a good idea to try a land tax specialist lawyer as you never know you may find a way out of it. It sounds strange to me that you are not exempt – but I don't don't much about land tax.
(One of my clients tried to argue he was running a business of bee keeping/honey production and tried to get out of it that way)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
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