Hi all, I have been reading some stuff on the ATO website regarding capital gains tax and I am majorly confused about how CGT is calculated on a property that was a PPOR when purchased and then turned into an IP.
What I would like to know is how long does a property have to be a PPOR in order for it to be CGT free if it is rented out as an IP for 6 years afterwards?
I have used a CGT calculation tool on the ATO website (http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=CGT_AND_REAL_PROPERTY.xr4&go=ok) and according to that I can live in the property for one day and then rent it out for 6 years and not pay any CGT if I sell it at the end of the six year period. Is this right??? I was under the impression that the property had to be a PPOR for the first 12 months before it could be rented out for six years in order for it to qualify for CGT exemption.
If anyone can shed some light on this it would be greatly appreciated.
The tax Act doesn't specify a minimum lenght, only that it must have been your main residence before renting out for the CGT exemption to apply.
see http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.htmlTD51 contains info on what factors they consider when determining whether a place is one's principle residence
http://law.ato.gov.au/atolaw/view.htm?locid=cgd/td51/nat/atoBut a principle residence may not be the same as a main residence.
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
Hi Terry and Skuz,
I was looking at just this not long ago. If it was so simple: you buy a place, send your mail there, put on the gas, electricity, water and phone, move a couple of things in (say a bed and chest), renovate the place, then sell it within a couple of years. Claim it was your principal residence for a few months and not have to pay CGT, would not everyone be doing this, maximising their profit, and not paying tax on their gain?
It seems like too big a grey area to be that easy.
Also, what if you buy an IP, rent it out for a few years, can you then move into it for a few months, rent it out again after that and then claim it was your PPOR for a short period to avoid CGT??
Bexs
You can only claim a place as your main residence after you have moved in. So not living there wouldn't qualify. Moving in later would qualify from that time, but the period in which it was rented can't count for the CGT exemption.
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
I should also add you can only claim one place as your main residence at any one time.
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
I have been told that if I knock down our old cottage and build two new strata free standing homes I can live in 1st one (have mail directed etc) rent out the 2nd one for 3 months. Then decide to move to the 2nd one – send letter saying have moved due to noise, privacy etc etc to tax office, move to 2nd one then sell 1st and avoid CGT.
Does that sound like it is true!no
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
Hi,
I have a similiar situation as well. I'm currently living in my PPOR but planning to move back with my parents in a couple of months. I was just thinking of renting my current PPOR out and at the same time, declaring it as my main residence for up to another 6 years, as long as I don't declare a PPOR else where. Is this valid? or possible?
Cheers
TalisTalismans wrote:Hi,I have a similiar situation as well. I'm currently living in my PPOR but planning to move back with my parents in a couple of months. I was just thinking of renting my current PPOR out and at the same time, declaring it as my main residence for up to another 6 years, as long as I don't declare a PPOR else where. Is this valid? or possible?
Cheers
TalisYes, that's fine, as long as you don't have another PPOR.
cashwalton wrote:I have been told that if I knock down our old cottage and build two new strata free standing homes I can live in 1st one (have mail directed etc) rent out the 2nd one for 3 months. Then decide to move to the 2nd one – send letter saying have moved due to noise, privacy etc etc to tax office, move to 2nd one then sell 1st and avoid CGT.
Does that sound like it is true!I'm not sure why you would tell the tax office you are moving. And if it's noisy or not private in the first house, is it going to be any better next door?
If you are building one to live in and one to rent, then you could conceivably sell the first one CGT free, as it is your main residence. BUT,
– where are you living while the new PPOR is being built? You can only claim one PPOR at a time.
– you can't go into the development planning to sell one after a couple of months.
– if you sell a new property (bearing in mind 'new' housing is anything that is less than 5 years old and not previously sold) you could be up for GST.If your intention is to build a PPOR and rent the other, then your circumstances change, then MAYBE you could get away with no CGT on the first one, but the ATO are looking at these scenarios more closely nowadays. You would need to prove that your circumstances have changed from your initial intention.
It would be a risky plan, and not one that I would recommend.
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