Hi there gurus
Here is a quiz for the knowledge trust
We have a property bought in 1993 rented out for three years until 1996. PPOR until 2002 then rented back out again until now (7 years)
We still live elsewhere but we haven’t bought another PPOR.
And we now want to sell the property because we are multiplying !!! And we need a house for the rug rats !
CGT payable is $30k.
Can we get out of the CGT by moving back into the property for six months?
Some say yes – some say no
A poorly educated guess is not totally. The first 3 years it was a rental, the next 6 were OO, followed by a 6 yr allowable absence. Yr 7 and beyond again is a rental. Not sure if the regs changed (as they do every time the wind blows), however 4/16 yrs x MRT x 50% discount on the capital gain is possibly your liability (unless your extended absence voids the 6 yr rule). To lessen the impact again, if the property is in joint names, make sure that your missus is on a lower salary esp when you come to sell.
Stage,
Your property won't be able to use the 6 yr absence rule since it was rented out as soon as you purchased it. Living in it for the last 6 months prior to selling it won't make the place a main residence for CGT exemption purposes.
One trick that a lot of people don't know is that during the the holding costs during the PPOR years when you did NOT claim tax deductions on can be added to your cost base (increased cost base reduces your CGT). Holding costs includes interest on home loan, rates, strata, insurance etc etc.
SO you kmight find the $30k CGT might be knocked down quite considerably from these holding costs that can be added to your cost base (especially if you paid a bucket load of interest during those 6 PPOR years)
Kevin
What about it counting for the main residence exemption for the period it was rented after they lived in it. They can only claim 6 years, so what happens if it is rented for 7? are the first 6 years countable or do the lose the lot because of the time exceeding 6 years.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
No, moving back in will not help you. Because it was rented out from the beginning, the 6 year rule does not apply in the first instance. For the next period of rental, the first six years of rental can be claimed as your PPOR PROVIDED you did not have another main residence.
Also, Kevin, you can't claim interest and rates and other holding costs for the time the property was a PPOR.
Dan42,
I didn't say the holding costs (interest, rates) etc were to be claimed as a tax deduction. I said you can add it to your cost base and hence reduce CGT payable.
"One trick that a lot of people don't know is that during the the holding costs during the PPOR years when you did NOT claim tax deductions on can be added to your cost base (increased cost base reduces your CGT). Holding costs includes interest on home loan, rates, strata, insurance etc etc."
I didn't explain myself fully. I don't think you can't add holding costs to your cost base for a PPOR.
If you had a holiday home which was never subject to the main residence exemption, you could add all the holding costs to the cost base, because the gain is subject to CGT.
In Stage's case, some of the gain is not assessable due to the main residence exemption. I don't think the cost base can INCREASE while it was being used as a main residence.
eg. Say you bought a unit 10 years ago for $150,000. You rent it out for 6 years, then live in it for four, then sell it for $250,000. Your capital gain is ($250,000 – $150,000) x 6/10, less 50% discount. The interest and rates paid during the last 4 years don't increase the cost base, as there is no tax payable on the last four years capital gain.
If you can show me something different, then please do.
Hi Dan42,
Continuing our conversation on this matter, the following ATO PBR is pretty much the same situation as "Stage's" circumstances. i.e Property was purchased after Aug 1991, was let out immediately after purchase, become PPOR for 2 years and then was rented once again for several years.
This PBR confirms that the interest costs an (rates, land tax etc) that were NOT claimed as a tax deduction during the PPOR years can be added to the cost base for CGT purposes i.e as 3rd element of a CGT asset.
http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/79884.htm
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