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Hi Mav,
You may have already considered this, but I'll throw it out there just in case. I know in QLD (I'm sure it's the same in SA, but do not know about other states), that even if the property is your PPOR, you will still have to pay Stamp Duty at a pro-rata full rate.
To explain futher. When you buy as an investment, you pay full SD. When you buy as a PPOR, you receive a discount on the SD. In our instances when we do just what you're planning to do, when we sell within 12 months, then we've not fully met one of the conditions of receiving the discount – the condition that states we have to live in the property for a set period within the first 12 months. Therefore we pay the pro-rata on the difference between the full rate and the discount rate. E.g. if we received $5,000 discount for a PPOR (paid $3,000 instead of $8,000), and sell the PPOR after 6 months of living there, then we have to pay $5,000/12 months of the year, multiplied by the 6 months we didn't stay there – $2,500.
The Office of State Revenue website in your state will explain more clearly (or ring like we do often).
There is no set time to live in a place to qualify as a PPOR, but like MR501 states, it's more than just duration that determines this.
The determination as to whether you're running a business or not is not so clear cut. We've spoken to Tax Accountants, specialists in property, even the ATO. If you do one or two renovations a year, then that's generally not considered a business. After 3 a year, then it may be considered a business. But the amount of profit you generate also comes into this as well. If it's over $75,000 (regardless of properties), then this may be considered a business. There are a number of factors that come into play. Anybody able to clarify this for us as well, would be greatly appreciated.
Another consideration you may want to look at is what's considered a renovation – this varies from state to state. In some states, any renovations over $12,000 may require you to hire a builder or become an owner builder to manage it. Again, this is not completly clear cut, as it is not clear in what time frames the renovation is considered. E.g. if you do $10,000 in one month, then 3 months later do another $10,000, is this one $20,000 reno, or two $10,000 renos? As above, if anybody has definative answers to this as well, it would be appreciated.
Hope this provides some useful information.
Cheers,
GrahamHi Rachie,
For Stamp Duty, I don't know what state you are in, but I can tell you what happens in QLD. This may be similar to other states.
If you gain the SD concession for a Principle Place of Residence (PPOR), then one of the conditions of this concession is to live in the place for 12 months. If you break this condition, then you are required to pay the pro-rata difference in SD.
An example may help. You buy a place for around $270,000 as a PPOR and pay $2,700 instead of the $7,700 you would pay for an investment (therefore you get the concession). You sell in six months, notify the Office of State Revenue, they reassess your contract, then you pay the pro-rata SD. In this case, it's the $7,700 minus the $2,700, which is $5,000. This difference is then divided 12 months of the year, then multiplied by the number of months you did not live in the unit in that year. E.g. $5,000/12 = $416, multiplied by the 6 months not living in the property = $2,500 you have to repay (a rough figure, but usually close).
You usually have a period of time from selling the property to notify the Office of State Revenue (28 days in QLD).
I tried to make this simple, but reading it back may sound more complicated than it is – someone else may be able to pitch in here.
Best thing to do is to find the website for the Office of State Revenue (or a variation of this name) in your state and read the guidelines. http://www.osr.qld.gov.au/ for QLD.
As to whether you should hold, sell, or buy more properties, that would be decided by the strategy you have chosen for your investing. Do you want to gain a cash base now to provide capital for larger works, do you want to develop a portfolio over a longer period of time for retirement, do you have short term and/or long term objectives you must meet? Many different variations and there is no one-size-fits-all strategy.
Hope this provides some light.
Graham
