For an IP?
Agents Fee?
Legals?
etcHow does it get calcuated when you lived in the property for the first year of owning it?
Thanks!
Hello pasandbec
All selling costs, including the ones you mentioned, are deducted from the sale price for CG calculation.
If you lived in the property as your PPOR for the first year and then rented it out for 4 years then the calculation of taxable CG would look something like this:-
CG (over the 5 years) X 4/5 except that the ATO calculates it in days and not years as here.
You would then get the 50% discount.
However, there are some things to remember.
The difference between what you paid for the house and the sale price is not the CG. It's a much more complex calculation and takes into account both the buying costs (including stamp duty) and selling costs as well as depreciation.
A very important thing is… when did you buy your new PPOR. For example if you rented for a year before you bought then you would still count the first house as your PPOR in that year and the calculation would then be CG X 3 / 5.
The other thing is I believe you can choose which place to treat as your PPOR. It may be that you had great CG on your first PPOR but less on your current one. Or you intend to live in your current one for a very long time. In both those cases it may be worth while to treat your first house as your PPOR for the whole time and so pay no CGT. Of cause this has disadvantages for your current PPOR so you really need to discuss all this fully with a good accountant.
Hope this helps
ElkaSo if i renovated an IP, i buy it then live in it as my PPOR for 6 months while im reno-ing it(to get FHOG) then i move out after 6 months back into parents then some years later i buy my PPOR and want to sell that first IP, say 5 years, so i lived in it as my PPOR for 6 months. how would the CG work out on that?
I'm very confused how the actual buying and selling costs get calculated in this figure, are they included(e.g. i bought for 200K with 10K selling costs on top to make 210K, but when they calculate for CG what figure do they use) whats the situation with selling costs aswell?Hello DraconisV
You are certainly determined to understand all this before you get to the stage of buying aren't you. Good on you.
Basically your example is:-
1. Buy PPOR (and live in it long enough to establish it as your PPOR)
2. Move out and use it as IP while renting or living with parents (i.e. not buying another PPOR)
3. Sell it 5 years later and buy another PPOR.In this case your first PPOR would be CGT free based on the 6 year rule which says that you can rent out your PPOR for up to 6 years without effecting it's CGT free status. If you sold after 6 years then you would be proportionally liable for CGT as per the formula in the post above.
However, in your situation, if the 6 years were nearly up, you could move back into your PPOR for awhile (I don't know the minimum) and then the 6 years would start again.
As far as your second question is concerned, here is a link to a thread where the calculation for CGT was well explained by Jefftheunit
The incidentals of purchase and incidentals of sale in his post are the buying and selling costs.
Hope this helps
Elka
Thank you Elka
You are correct in saying that i'm determined to figure lots out before I get to buying.
Your post sort of helped me and that link helped me understand, but not so much in relation to my question.
Most people think in pictures, my thoughts are in numbers, so i guess i'll plug in some values to see what happens.
Ok. I buy a prop for 200K, with 2.5K selling costs and the FHOG, so I actually fork out 195K. I don't think the size of my deposit matters here(but we'll just say 40K, or about 20%).
Ok, i move right in and start renovating, I spend 15K on renovations in the 6 months, Correct Elka I stay in the property as my PPOR long enough to qualify for the FHOG then after the 6 months I am back in my parents house. over the next 4.5years(5 years from purchase) i decide to sell and use my capital growth to buy a real PPOR.
So I have bought and kept for more than 12 months, so I get the 50% CG discount.
I lived in there for 6 months, does this actual 6 months mean anything?? What if i was 7 months or 8 months(would that make a difference?).I'm getting from what your saying is that I lived in my IP(former reno "PPOR") and now as I lived in there can get complete CG exemption for up to 6 years or so(or whatever time the gov says so), so that if i buy my IP(former reno PPOR) in 2010 and sell in 2015, with 4.5 years or renting out, I can then sell and not pay any CG tax.
If all of this is true and I don't pay any CG, then what happens with the situation where I get tax deductions while owning the IP. like building and fixtures deductions that actually reduce the amount my property is worth. Will they have any impact on my CG or any impact if at all???
I'm sorry Elka if my posts are extremely hard to reply to as I pretty much spend the whole time asking many many questions.
Atleast I have realised that the only stupid question is one not asked, so i'm all fine there.I look forward to your reply or anyone else's reply. I'm sorry pasandbec if I have hijacked your thread, I seem to just move in and start putting up my tent so to speak.
Thank you,
Best Regards,
Christopher 'inquisition' Fife.DraconisV wrote:Ok. I buy a prop for 200K, with 2.5K selling costs and the FHOG, so I actually fork out 195K. I don't think the size of my deposit matters here(but we'll just say 40K, or about 20%).
I think you mean buying cost here?. B.T.W 2.5K is much too low. Don't forget the dreaded stamp duty. Buying costs are about 6% of the purchase price.
Ok, i move right in and start renovating, I spend 15K on renovations in the 6 months, Correct Elka I stay in the property as my PPOR long enough to qualify for the FHOG then after the 6 months I am back in my parents house. over the next 4.5years(5 years from purchase) i decide to sell and use my capital growth to buy a real PPOR.
So I have bought and kept for more than 12 months, so I get the 50% CG discount.
I lived in there for 6 months, does this actual 6 months mean anything?? What if i was 7 months or 8 months(would that make a difference?).No. How long you live in it first is irrelevant. It could be years.
The important thing is that you live in it long enough for it to qualify as your PPOR.
The other important thing to note here is that you moved in as soon as you bought it and did not rent it out first. If you had done that then the 6 year rule would not apply.
I'm getting from what your saying is that I lived in my IP(former reno "PPOR") and now as I lived in there can get complete CG exemption for up to 6 years or so(or whatever time the gov says so), so that if i buy my IP(former reno PPOR) in 2010 and sell in 2015, with 4.5 years or renting out, I can then sell and not pay any CG tax.That's correct.
If all of this is true and I don't pay any CG, then what happens with the situation where I get tax deductions while owning the IP. like building and fixtures deductions that actually reduce the amount my property is worth. Will they have any impact on my CG or any impact if at all???
No impact as you will not be liable for CGT in this example.
Hello Christopher
The point your missing is that under your scenario, where you have a PPOR which you rent out for less than 6 years and then sell having owned no other PPOR in that time, you are not liable for CGT. This means that what you paid for the place, what you spent on the reno, what you sold it for and whether or not you owned it for more than 12 months are irrelevant. The profit you make on this sale is CGT free.
However, I have answered some of your questions in the body of the quote.
As far as the expenses while it's being rented out go, these are all tax deductible but naturally you must declare the income you receive as well.
If you go to the ATO site there is a lot of good information, together with examples, over this subject.
Hope this helps
ElkaThank you again Elka, you have helped me so much.
Hmm, I did mean buying costs, not selling costs.
um, i said 2.5K because I should get stamp duty for free, but your probably still right and it should be atleast budgeted for 5K or more.I'm breathing a sigh of relief that I wouldn't haev to pay any CGT on it, provided I follow the rules that we have talked about.
Hmm, i'm outta questions at the moment, Elka you have done well by being able to silence my barrage of questions.
Thank you again,
Best Regards
Christopher Fife.Ah, I have a question. (I thought of it a few days ago and then forgot and was kinda angry, but i remembered so i better get it down).
So Elkam we have the same situation as we have been talking about in this thread but now say i decide to keep the property for say 12 years instead of 6. So i get CGT exemption for 6 years but then what happens with the 12 years, do i lose the whole CGT exemption or do i only pay a % of the CG in terms of the % over the 6 years.
E.g. I make 100K on a property, after the 6 years i pay no CGT so i get 100K(nice).Same thing after 6 years 100K up, but now i keep for another 6 years. and in the mean time io have made another 100K. So now after 12 years in total i have made 200K. Now if it is what im thinking it is then i only get taxed on half of it as i have had half of the time CGT free, so 200K, half time free, making the bill 100K, so i pay tax on 100K, say at 30% tax rate and get in total after the sale after 12 years 170K.
Also just to add, most of this time i have been getting +ve CF and am now reaping more rewards then jsut +ve cashflow for 12years.Hmm, Elkam what do you think of this? What does everyone think of this?
Christopher Fife.
Hello pasandbec
I have been reading the ATO site lately and it seems that the method I outlined above for calculating CG is true if you started renting out your PPOR before 21 August 1996.
If you started renting out your PPOR after 20 August 1996 it seems another rule applies. Here is the link to the ATO site. The first example may be what you are looking for.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36910.htm&page=3&H3
Speaking to your accountant is always the best place to start.Sorry if I mislead you.
Elka
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