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.

You have two options. You can CGT on the percentage of time it was not a PPOR, or you can pay on the basis of the 2006 valuation. You can use whichever option gives you the best result.

ie bought in 2000, PPOR until 2006, sold in 2010. You can pay CGT on 40% of the total gain (4 years as non-PPOR) OR, pay CGT on 2010 sales price, less 2006 valuation.

That is an interesting one. The general principle is that the funds are in a separate account, which doesn't change the loan amount and the purpose of the borrowing. When funds are withdrawn from the offset, the only change is that interest is now calculated on a higher amount, due to less funds in the offset.

The ATO would probably argue that the loan has in effect, been paid out, and the withdrawal is a new loan. Probably the time the funds were in the offset and the fact that there was no interest for 3 years were also factors.

I agree it's a grey area, because, according to the general principloes, it would be deductible. But other factors have caused the ATO to deny the deduction. Where is the line drawn?

I personally think your client would have an arguable case. I'm not saying he would win, but he could put up a good case for the deduction.

Thanks Richard.

You don't have to live in it for 6 months. There is no minimum.

But you have to be able to prove you lived inthe property. Main residence exemption is a question of fact, so the ATO look at things like; having your mail go to the address, connecting power, telephone, gas in your name, changing your drivers licence, etc

Practically, you would need at least a couple of months in the house for it to qualify as your PPOR,

And it only retains PPOR status if you don't buy another house to live in. You can only have one PPOR at a time.

Your accountant is correct.

Interest deductibility is determined by what the borrowed funds were used for, not the security offered. To but another IP, you could get a line of credit secured against the Melbourne house, to cover  the deposit and fees, then get a new loan for 80% of the second IP. I'm sure the mortgage brokers on this site will have some ideas for you.

My point about leveraging:

If you purchase a property for $400,000, after putting in $100,000 to cover deposits, in either super or out of super.
Assuming property grows at a steady rate of 6% (I'm not saying it does, it just makes it easier for my rudimentary excel skills).

As you can access the equity when purchasing outside of super, you can buy again more quickly. So after 10 years, assuming straight line growth, your equity would be about double outside of super than in it. This is because after 10 years outside of super you would have three properties, and a portfolio at approximately 60% LVR. In super, you would have just one, unless you could increase your contributions so that you had enough cash to buy again sooner.

Of course you could do both.

The only problem I have is the line:

A properly arranged loan will allow the investment property to be purchased in a property investor trust, while still allowing the individual to claim any negative gearing

To do this, the trust would need to be a Hybrid Trust or a Unit Trust. It is getting harder and harder for Hybrid Trusts to borow, and the ATO have them on their radar. With a Unit Trust, the units would have to be owned by the individual to claim the negative gearing, so there is more asset protection than having the property in your own name.

No CGT or stamp duty on the assets.

How? There would be stamp duty on the purchase of the new property, I don't see how you would get away without paying stamp duty. There would also be CGT when you sell the investment property.

You can, but it isn't as simple as it sounds.

Firstly, if you rented out your current home, the expenses associated with the home would be deductible, ie Council rates, water rates and interest. Interest is deductible because the borrowed funds were used to buy the house, which is now rented out.

If you redraw funds from the loan for non-deductible purposes, such as buyinga new PPOR, then some of the interest will be deductible, and some won't be. This is because of the purpose of the borrowings.

It would be best, for tax purposes, to keep the loans separate. This would mean getting a new loan, secured against your current house, to cover your fees and deposit etc. The MB's will have some ideas on the best way to structure this.

Dan