Hi guys,
I am currently looking to buy a property to live in for 12-18 months and then converting it to an investment and renting it out but claiming it as my primary place of residency for future CGT concession.
I have come across a property I am interested in, however there is another 6 months of lease on the property. I checked the ATO website and it saids that I need to move in ASAP in order to qualify for the CGT concession and if I were to collect rent for 6 months then move in I would lose my CGT concession. Is this right? I also tried going through the calculator on the ATO website and it said the situation was too complicated and i need to speak to an accountant
Anyway, has anyone else been in this situation before and know the appropriate treatment
Cheers,
If you are looking for house to live in for the next 12-18 months, this is not it – it is occupied and not available. Does it still meet your requirements?
Secondly, as soon as possible in this case is in six months time. Yes, you do lose some of your PPOR benefits regard to a full cgt exemption however if it is six months out of 2 years then you are only liable to cgt on 1/4 x 1/2 @ MRT. Unless the property is severely undervalued, you will generally not make a profit on sale within 2 years (property is a long term hold due to the transactional costs).
The problem may not be that you lose 6 months out of 2 years CGT exemption but that, because it will be seen as having been an investment property first, it will not qualify for the 6 year rule. This is what you're planning to use based on your original post.
(That's the one that says that you can rent out your PPOR for up to 6 years without losing it's CGT free status. )
At least that has always been my understanding of the rule but I would be happy to be shown that I am wrong.
You should check this very carefully with a good accountant.My suggestion would be to see if you can get vacant possession.
If the vendor is keen to sell then get him to approach the tenants with an incentive to vacate the property before you settle on it.If he lets them know that their lease will not be renewed and offers to pay their moving costs now that may do the trick.
Worth a try.
Good luck
ElkaIn the current market, ie very tight rentals, you will be offering the tenant a payment based on the reversion of what it is going to cost them to occupy another premises for six months as well as removalists, lease costs etc. I know that'd be my absolute lowest point as the tenant – they have all the power for the negotiation in this situation ie you may own the property but they have possession under the lease.
Very true Scott.
That's why, if your accountant confirms that my understanding of the 6 year rule is correct, I would get all this sorted out before I signed anything.
elkam wrote:The problem may not be that you lose 6 months out of 2 years CGT exemption but that, because it will be seen as having been an investment property first, it will not qualify for the 6 year rule.
Yeah this was my main concern. The ato website states that I will need to move in first in order to treat the property as my PPOR and apply the 6 year rule.
I think the main issue here is the property can not be treated as my main residence as I would not have moved in as soon as practicable after settlement. Since it ca not be treated as my main residence it follows the 6 year rule can not be applied.
Looks like I will have to try to find another property.
Thanks for your input guys,
cheers
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