Forum Replies Created
- 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.
Talismans 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.
SHales wrote:Ahh, thank you Dan, so there is the distinction. So long as you don't BUY a PPOR.So, for us. In 2002, we rented out our PPOR after living in it for 2 years. We moved into employer provided accom for about 4 years, then we bought another house as a new PPOR. Our CGT starting point for the first house is 2006 – is that right? So CGT is payable on price sold minus 2006 price (adjusted for inflation)?
That's terrific, I didn't know about this until this thread. That's going to save us a bomb.
cheers
S
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.
SHales wrote:you only pay CGT when you sell. Never sell, never pay. Only pay income tax on rental income (unless you run a loss)Someone more knowledgeable might be able to confirm this.
Thats right, Capital Gains Tax is a cost of selling. You don't pay any CGT until you sell. So if you hold the properties forever, then you never pay CGT. (Your estate will, but you won't have to worry about that!)
Peppers, the advice you got about the 6 year CGT exemption is incorrect. You can only have one PPOR at a time.
If you buy a property to live in, then move out, rent it out and RENT somewhere else yourself, then you are only claiming one PPOR. But if you BUYsomewhere else to live in, then the 6 year rule doesn't apply.
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.
My prediction? I'm not predicting huge growth, and I don't know what will happen. I'm not someone who thinks property doubles every 7-10 years automatically, and realise that prices go both up and down.
But I do think that a 20% across the board fall is very unlikely to happen, because ot the very reasons you mention. Govt intervention foiled your earlier predictions (although you should have seen that coming), and no Australian govt will want a huge house price drop on their hands. Especially in an election year, seeing as 70% of Australians are home owners. (One of the highest rates in the world).
Thanks Richard.
Just to clarify:
If fWord has a house worth $470,000, and a loan of $360,000, can he borrow 90% of the equity or 90% of the total LVR?
If he borrowed $99,000, he would have loans of $459,000 and val of $470,000; LVR of 97.7%.
Is this correct?
PeppersGhost wrote:I buy a property on Jul 1st 2010 I move in July 2nd, 2010 I live in it for 6 months, then move out on Jan 3rd, 2011. I sell the property on June 30th, 2016. I haven't lived in it as a PPOR since Jan 2011. The property has increased in value. Is it true to say there is no CGT to pay? CheersYou 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.
Question 1 – No, the interest will no longer be deductible. (Assuming the boat is used for private use). Basically, you will have paid out the IP LOC, and borrowed for a new private asset.
Why not just put the funds into an offset account against the 80% IO loan, until you decide what to do?
WJ Hooker wrote:August 12 2009Yes,
I admit I am a follower of Steve Keen, eventually Australia will catch up with the rest of the world. Mind you I think that the sharemarket will crash again, so maybe I am too pesimistic a person. I am eager for house prices to crash so I can buy a big pile of them, I predicted a large drop this year, but, interest rates dropped 3% to save people. BUT… as they now start to rise finally we may see some real action.WJ Hooker wrote:May 18 2009Jarra,
The country is going broke, and you beleive that house prices will rise?Debt is going to make all of us worse off, things will get worse over the next few years, everyone will be selling, over a million on the dole, government will put them all on food vouchers, things are going to get a lot worse than you all think.
Do not go into debt now.
WJ Hooker wrote:April 28 2009I see problems coming, unemployment to reach 10%, its going to be a terrible few years.
House prices will fall, unfortunately its a reality.WJ Hooker wrote:April 21, 2009undecided.
If you want to wait for house prices to go up again…. then you better be prepared to wait a lllooonnnggg time.WJ Hooker wrote:Dan42 – OK so 10million dollar houses have gone up in value – big deal.
Still on track..
WJ, I'm not sure what your agenda is. The article I linked to focuses on the higher end, but also says that the entire market rose by 12% for the 2009 year.
Perhaps you could read the link again, a little more slowly this time.
WJ Hooker wrote:Still on track..Still on track for what? An October 09 price crash???
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.
granthomson wrote:Hi guys,I was wondering if anyone had done this 6 week course on property renovations? I am about to embark on a new life journey doing renovations for profit and in the interest of educating myself intend doing this course.
I was just hoping someone had been on it and had and views on how well it worked for them.
Thanks
I think the point W4L was making was, how do you know Grant means Ana's course, from the information he provided in his opening post?
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.
To clarify my point 2, I got off topic a bit and was comparing property in super against property outside of super. I realise that was not the point of your post, so it wasn't really relevant.
I'm not sure where you are getting your costs, but I'd like to know where you can get accounts done AND have the fund audited for $1000. Generally, it wouild be anywhere from $1500 to $2000, depending on the size of the fund and complexity of investments etc.
I'm splitting hairs, but it's important to let people know that fees are variable and can be a lot more than $1000. You would also add costs to vary deeds (if you have a deed pre-2009, you need to have it varied to allow the SMSF to use instalment warrants).
I guess what I'm trying to say is that it's not for everyone.
But I take your points, and it's something I'll look at doing myself when I have enough super.
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.One – set up costs are expensive, as are ongoing accountant / auditor fees.
Two – can't use one property to leverage another.
Three – current ambiguity in rules as to whether CGT is payable once loan is paid out, on transfer from bare trust to SMSF.And the main reason for me. Sure, I might make a nice profit, but I can't get at it until I'm 60. That's 25 years away, and it's also assuming the government/s don't raise the age limits.
So there are some reasons.
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
Hi Keiko,
From memory, I think that is right, but it can only be done in a couple of states. (I think its Victoria and WA, but don't quote me on that.) I'll re-post if I can find some info.
