Hi folks, Been reading the forums with great interest. Bought Masterclass (now if only I had the time???!) & a ticket to the April conference. Really looking forward to it. I am in a quandary with regard to a property purchase & I am really keen to seek some opinions/suggestions regarding it. I am still a novice so CGT etc is still in it’s infancy in my tiny brain. Let me précis the background. My partner & I have just decided to announce our engagement & are planning to wed early 2009. We are in our very, very late teens….she’s 52 & I’m 49. I have 3 kids 18/16/11, she has 2 kids 18/19. She owns her place in West Brunswick worth around $6-650K debt $100K fixed @ 6.99% 3 yrs to run. (Bought 13 yrs ago). I got cleaned out by my Ex & currently rent a dogbox in Aspendale @ $280 Wk & have $50K cash. We have been toying with some possible IP’s but for now the need to house both families is becoming paramount. We don’t want to uproot our kids from either side of the city so have evolved a strategy of retaining West Brunswick for her boys to continue living in & look for a place down my way to domicile my tribe. The plan is to retain 2 homes for 5yrs & live half in one & half in the other ( which should see the older 4 kids out ) & then either liquidate & get something smaller in a better location or switch one to an IP. The ½ & ½ premise also supports my partners work requirements as she has her workplace in Fairfield & works a 4 day week Tues-Friday which is when we would be at West Brunswick. We have found a 5 BR property in Frankston That fits the bill which we reckon we can get for around the low $300’s which is just within the budget. My concern is given that my partner already owns a property we may be exposed to CGT on her 50% of the new place come time to sell. Given that we will be looking over time to acquire IP’s is it feasible to consider other structures & if so what kind? I have tried to follow the info on the ATO website…but it just gives me a head crash. Any suggestions most graciously acknowledged & if you got this far thanks for reading.
Hi Wodnee
Firstly welcome to the forum and congratulations on your forthcoming engagement.
On the basis that you are both going to live in the new property this will be your PPOR and the property in West Brunswick wil be an IP. I am unsure as to whether her boys will be paying any rent on the property (and if so will this be market rent) so it is difficult to now the extent to which she will receive an entitlement to any negative gearing deductions.
Unfortunately the way you want to proceed means that the interest on your new home will not be tax deductible as the purpose of the loan is for owner occupied use.
However in saying this the structure of the loan is important given your idea to possible retain both properties down the track.
With regards to the CGT concession she is entitled to this may help:
The first major point of the six-year rule is that you cannot apply it until after you’ve lived in the house. Factors the Australian Tax Office (ATO) considers relevant in determining if you have lived in a house include your address on the electoral roll, where your family resides, whether utilities are connected in your name and where your personal effects are kept.
Assuming you’ve lived in the home, you can rent it out for up to six years at a time and continue to give it your main residence exemption. Of course during this time you cannot exempt another property as your main residence even if you’re living in it. Couples are only entitled to one main residence between them. If you move back in after renting the property out for six years and then move out and rent it again you’re entitled to another six years and so on.
If you vacate the property for more than six years in a row you can still use the six-year rule to exempt it for the first six years.
Let’s assume you have “property one” which you’ve lived in since you purchased it and “property two” which has been a rental property since you purchased it. Due to urban renewal that has just begun around property one, you expect it to make better capital gains and earn a better rent than property two. So you decide to move from property one into property two. By leaving your main residence exemption with property one, in six years’ time you could sell it and not be subject to any capital gains tax (CGT) on it.
If you ever sell property two you will be subject to CGT on it for the period you owned property one. You can move your main residence exemption across to property two as soon as you have sold property one. You don’t have to move back into property one before you sell it, nor do you have to justify to the ATO why you arranged your affairs that way, it is your choice.
You don’t have to decide which property is covered by your main residence exemption until you prepare your tax return for the year you sell property one. If you intend to live in property two for the rest of your life, the sleeping CGT liability on it will never bother you or your heirs.
Hope this helps.
Richard Taylor | Australia's leading private lender
Ok my friend 12 posts and 12 pieces of spam.
Enough is enough. Back to Bombay if you please.
Richard Taylor | Australia's leading private lender
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