Hey all im new to the forum here so hope this is in the right section.
My partner and i purchased a house in Adelaide at the start of 2010 and lived in it for 12 months while renovating it. We then moved to Brisbane and now rent the property out. We have a few questions about the tax side of things.
Our accountant told us that we will not have to pay capital gains tax if we sell it within 6 years because its our principal place of residence. How can this be classed as our principal place of residence if we now rent a house in Brisbane? Is he trying to pull a dodge here?
He also said that if we get a depreciation report done and claim depreciation we will then have to pay capital gains tax when we sell the house.
I guess what im getting to here is im assuming that we will have to pay capital gains tax regardless because we do not even live in the same state as this property an we rent it out which to me seems like it would be classed as an investment property right? Well if this is the case we may aswell get a depreciation report done and get some extra tax money back
Also how does the tax work when it comes to interest. Does the interest we pay over the year come of our taxable income?
Sorry for the long read i appreciate any help. I have been to the ATO website and i cant get a clear answer it seems to contradict itself and leaves me puzzled.
see s118.145 ITAA 1997. A temporary absence from your main residence may not trigger CGT.
I think he is wrong about the depreciation bit. Ask him for authority to back up his claim.
All expenses for the property are added up and then deducted from the rent. This income or loss is then added to your other income for the year
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
AllanP wrote:Hey all im new to the forum here so hope this is in the right section.My partner and i purchased a house in Adelaide at the start of 2010 and lived in it for 12 months while renovating it. We then moved to Brisbane and now rent the property out. We have a few questions about the tax side of things.
Our accountant told us that we will not have to pay capital gains tax if we sell it within 6 years because its our principal place of residence. How can this be classed as our principal place of residence if we now rent a house in Brisbane? Is he trying to pull a dodge here?
He also said that if we get a depreciation report done and claim depreciation we will then have to pay capital gains tax when we sell the house.
I guess what im getting to here is im assuming that we will have to pay capital gains tax regardless because we do not even live in the same state as this property an we rent it out which to me seems like it would be classed as an investment property right? Well if this is the case we may aswell get a depreciation report done and get some extra tax money back
Also how does the tax work when it comes to interest. Does the interest we pay over the year come of our taxable income?
Sorry for the long read i appreciate any help. I have been to the ATO website and i cant get a clear answer it seems to contradict itself and leaves me puzzled.
You may get up to a 6 year exemption on an absence if you had initially established the home as your main residence.
If you move back in before the 6 years expire or otherwise sell then it will be entirely exempt. Don't feel you have to sell !!! Don;t forget the 50% discount and the fact that the tax is deferred until disposal.
Any depreciation deductions on the capital works (buildings, etc.) will reduce the CGT cost base. However, to the extent it remains exempt while rented then there will be no CGT anyway !!
Depreciation deductions under capital allowances (e.g. hot water, oven, carpets etc.) will not affect the cost base for CGT.
Cheers,
Rob
Hey Terry and Rob cheers for the replys
I am starting to get my head around this but still have many questions and abit confused
From what im gathering is that what the tax bloke said is right. That i will be exempt from capital gains tax because it was initially my PPOR. As long as i sell within the 6 years or move back in for a little bit within the 6 years then can start the 6 years again (Taken from the income tax assessment act s118.145 ITAA 199)
Rob when you wrote ''Don't feel you have to sell !!! Don;t forget the 50% discount and the fact that the tax is deferred until disposal''
What do you mean by this what 50% discount are you talking about? (im very new to this lol)
So pretty much in a nutshell i can claim depreciation on this property in Adelaide while living in Brisbane and still be exempt from capital gains tax because the house was initially my PPOR? Providing i dont do it for more than 6 years.
Thanks again for all your help this is a massive learning curve for my partner and I. Also can anyone recommend me a good tax agent to see about doing our regular tax and IP tax?
If CGT applies and you have held the asset longer than 12 months then the CG can be reduced by 50%.
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
Oh ok i was unaware of that. So thats why Rob said i would not have to sell because after the 6 years are up i could still keep renting it out and get the 50% discount later on down the track when i decide to sell. I like the sound of that
Bump
Can some one please confirm if i have my head around this from what i wrote a couple posts up? It would be greatly appreciated.
Also can any one recommend a good accountant that can sort out my tax for my IP and job in Brisbane?Cheers Allan
AllanP wrote:HSo pretty much in a nutshell i can claim depreciation on this property in Adelaide while living in Brisbane and still be exempt from capital gains tax because the house was initially my PPOR? Providing i dont do it for more than 6 years.
This could be the case, but there are many other factors that need to be considered.
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
Hey just giving everyone abit of an update in case they could use this info in the future.
I rang the ATO up and they said it will not be a problem because we lived in the house previously it is classed as our principal place of residence. There for making it exempt from capital gains tax for 6 years with the 50% discount after that. So we can still do the depreciation with out a problem.
Nice thread.
I have owned one of my properties now for 6 years now and I understand that as it was my principal place of residence that it is CGT exempt for this time.
(Although perhaps not the first 11 months as it was rented when I purchased it and didn’t move in until after that, just a side note not the point/question).I have heard that this 6 year period is renewed if you move back in. Is this correct and how long do you have to re-occupy the residence for?
property1234 wrote:I have heard that this 6 year period is renewed if you move back in. Is this correct and how long do you have to re-occupy the residence for?Yes, the six year clock is re-set if you move back in.
There is no set time that you have to move back for, but you have to be able to PROVE that you moved back in. You would need to change your address on your drivers license, get the utilities, phone connected, change your address with the bank etc.
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