Hi,
We are currently looking to sell our unit, which we fully renovated whilst we lived in it, we expect a sale price of $590k (remaining loan $410k). We want to use the $180k to buy an old house, knock down re-build, live in short-term & sell hoping to convert the $180k into $250k in 18months.
Q1. Given we purchased the unit for $430k (2007), lived in it whilst we renovated it over the past 3 years, now if we sell for $590k – do we need to pay any capital gains? or are we free to use the $180k to reinvest?
Q2. If we purchase an old house $800k, currently tenanted, with the intention to knock down re-build & live in the new house short term. will we have to pay capital gain when we sell the new house? We are looking to keep the tenants in for 4 months whilst we do the planning/approvals, then knock down, build new house say over 6-12 months, then we are looking to live in for 3-6 months before trying to sell. What are the CGT implications of doing it this way?? Keeping the tenants for 4 months helps cover the repayments whilst going through planning/approval process but will this hurt us in the long run? are we better off kicking tenants out and having higher costs upfront??
If you need more info on the situation let me know – appreciate any advice?
Thank you
K
If you lived in the unit from day 1 and never rented it and didn't class another property as your main residence during this time, then it will probably be CGT free.
Q2. Sounds like you are planning a profitable enterprise which may mean you will not qualify for a tax exemption at all.
If you are not planning this, but it turns out that you end up selling, then it will be different.
Firstly, it cannot count as your main residence until you move into it. So CGT would apply. If you were to move in yourself and then establish it as the main residence then you may find it CGT exempt.
There is also GST to consider. If you build a new house and sell it within 5 years you may have to charge GST too.
This is a complex area and you should seek proper advice before you sign the purchase contracts.
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
Thanks, we intend to purchase the new place in our personal names not a business/company, how could we charge GST wihtout an ABN?
I have read that you can buy/sell with no capital gain implications if you live there as your main residence, but no more than once every 2 years?? Is this accurate??
ABN is irrelevant. As is name on title i beleive. The GST act states GST applies to new residential property. New is defined to include something substantially renovated as well as to a new construction. It is also considered new for up to 5 years after construction.
You will need specialist advice as you may need to register for GST or you may not be able to claim GST on the costs incurred in construction.
But, there may be ways around this, so you need advice.
re the 2 years, that is not really correct. If you are conducting it as a business then tax will apply – maybe income or maybe CGT. If you are just livng in a place as a home then you may get the main residence exemption. There is no minimum time requirement, but the more you do it the more likely it will come to the notice of the ATO.
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
Thanks for your help – its all so confusing!
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