I am really confused with capital gains tax, could someone please explain this to me in simple terms. I have been onto various web sites including the ATO site but find this confusing.
I own a house which I purchased four years ago, lived in it until January 2004 but now rent it out. If I was to sell this house how much tax do I pay, I know that I get a 50% discount in tax if I have owned the house for more than 12 months. How do they calculate the CGT?
I purchased my house for $154,000, it’s worth $225,000 now.
Please help!
Hi Chris,
Generally speaking if this property was your only PPOR you do not pay any CGT.
A couple of complications arise if you are selling and move into another property (6 month dual PPOR applies) or you move out and do not buy another property (6 year exemption from CG rule applies).
If however you are liable for CG then the gain is proportionally levied against numbers of days as an IP and days as a PPOR.
Any gains are added to your gross taxable income and levied iin accordance with the appropriate income tax rates.
See also https://www.propertyinvesting.com/forum/topic/10925.html
which may be of assistance.Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Sorry you’ve lost me a bit. PPOR what does that mean???
I have purchased another property of which I am living in at the moment.
Mine and my husbands combined income is 87,000 so what ever profit I make out of selling my IP would be added onto that ($157,000 – profit $70,500) then CGT is calculated when I lodge my tax return at the income tax level?
I am the lower income earner of only $28,000 so could the profits from the house be added onto my income to be taxed for CGT? The IP is in my husbands name but both names for the loan.
I will sell the house once rented out for over 12 months.
What is the 6 year exemption from CGT?
Sorry for all the questions!
Renee
Originally posted by chrisrenee:Sorry you’ve lost me a bit. PPOR what does that mean???
PPOR is the ATO’s fancy description for your home.
I have purchased another property of which I am living in at the moment.
If you are living in this property it will be exempt from CGT as it qualifies as your PPOR.
Mine and my husbands combined income is 87,000 so what ever profit I make out of selling my IP would be added onto that ($157,000 – profit $70,500) then CGT is calculated when I lodge my tax return at the income tax level?
I am the lower income earner of only $28,000 so could the profits from the house be added onto my income to be taxed for CGT? The IP is in my husbands name but both names for the loan.
As this property is only in your husband’s name he will incur all CG.
I will sell the house once rented out for over 12 months.
What is the 6 year exemption from CGT?
If you lived in a PPOR and moved out and didn’t buy another property then you have six years after date of departure that the property remains free of CG. If however you bought another property the six year rule is null and void.
Sorry for all the questions!
Renee
Sorry Renee – I am still a little confused about the number and wnership of properties involved here.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Derek, thanks for your help.
We have two property’s. One which we lived in for 3.5 yrs but now has been rented out for 6 months (in my husbands name). We have another property which we have lived in since renting out our previous property (in joint names).
So if you sell the house you live in you wouldn’t pay CGT?
I guess the outcome I want is to make some profit out of one of our property’s to use to purchase another house for ourselves so we have smaller morgage. I still in future will continue to purchase IP’s.
Originally posted by chrisrenee:We have two property’s.
One which we lived in for 3.5 yrs but now has been rented out for 6 months (in my husbands name). We have another property which we have lived in since renting out our previous property (in joint names).
The second house will be CG free as it is your home.
The first property will have gains apportioned over the life of the property and based upon ratios as a home and as an investment property. Gains here will be levied against hubby as it is his property.
So if you sell the house you live in you wouldn’t pay CGT?
Correct
I guess the outcome I want is to make some profit out of one of our property’s to use to purchase another house for ourselves so we have smaller morgage. I still in future will continue to purchase IP’s.
Have you considered keeping both properties and using the equity available as security through a line of credit facility of deposits and purchasing costs of other property/ies?
There is no need to necessarily sell property to make money from them.
Hope that helps[biggrin]
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
That was my original strategy to just keep purchasing IP with using my equity.
Thanks for your suggestions, you have been very helpful!
Renee
If a taxpayer acquires a dwelling that is to become the taxpayer’s main residence and the taxpayer still owns an existing main residence, both dwellings are treated as the taxpayer’s main residence for up to six months (ITAA97 sec 118-140 ). However, this rule only applies if the taxpayer’s existing main residence was the taxpayer’s main residence for a continuous period of at least three months in the 12 months before it was disposed of and it was not used for income-producing purposes in any part of that 12-month period when it was not the taxpayer’s main residence.
This concession applies even if the taxpayer has made a choice under ITAA97 sec 118-145 or 118-150 that only one of the dwellings is to be treated as a main residence (Taxation Determination TD 1999/43 ).Where a taxpayer subdivides land on which a main residence is built and constructs a new main residence on the vacant part of the land, the main residence exemption is not available for both dwellings for the full period of ownership. However, both dwellings may be exempt for up to six months (Taxation Determinations TD 2000/13, TD 2000/14 ).
If a dwelling that was a taxpayer’s main residence stops being his/her main residence, the taxpayer may choose to continue to treat it as a main residence (sec 118-145 ). The maximum period that the dwelling can be treated as a main residence is six years if the dwelling is used for income-producing purposes while the taxpayer is absent. If the dwelling is re-established as the taxpayer’s main residence, another maximum period of six years starts to run if the dwelling again stops being the taxpayer’s main residence. If the dwelling is not used for income-producing purposes during the taxpayer’s absence, it can be treated as the taxpayer’s main residence indefinitely. Only a part exemption applies if the dwelling was partly used for income-producing purposes at the time it stopped being the taxpayer’s actual main residence
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