Hi,
Question 1:
I understand what happens when changing PPoR to IP. You agree on value, you do not pay tax, you keep equity to that value but you do not enjoy tax advantages because of low construction cost etc..
But changing IP to PPoR is not as straight forward. Say you buy IP for 400k and in 10years it is 800k and than you decide to change it into PPoR. I assume you have to pay TAX ON IT either cash (if you have) or in form of equity so the agreed value will be 800k minus tax. Now. The question is how much tax (33%?) and is it possible to minimise it by say who owns it, maybe trust, … ? Is it one way as how some people move into house of their dream that they can not afford as PPoR but can afford as IP and over years you move in once you can afford PPoR?Question 2:
There are some good opportunities for investment houses and 5 bedroom, 2 bathrooms 2 cars as minimum. Say it is selling for $750k. The issue I have is that it seems it is hard to get the price split into
* No tax deduction portion
* 2.5% construction deduction portion
* plant deduction portionThis split is HUGELY influancing decision if IP is good or not as good inestment.
Who is providing information of property that is say 7 years old and listed price is $750k. On what portion of this I will be getting 2.5% construction deduction?
And oif you buying new house is 2.5% applicable on price you pay to builder including his profit (sell price?) or pure net construiction costs and who determines the value?
you need to speak to a licensed quantity surveyor. They do a depreciation report and put a value on the building and plant/equipment/fittings etc with full break down for tax deductions. They can prepare this whether property is 1 month or 15 years old. Bear in mind houses constructed pre-1985 (I THINK thats the right year, doing off memory) do not have depreciation on the building allowed…
Question 1:
I understand what happens when changing PPoR to IP. You agree on value, you do not pay tax, you keep equity to that value but you do not enjoy tax advantages because of low construction cost etc..
But changing IP to PPoR is not as straight forward. Say you buy IP for 400k and in 10years it is 800k and than you decide to change it into PPoR. I assume you have to pay TAX ON IT either cash (if you have) or in form of equity so the agreed value will be 800k minus tax. Now. The question is how much tax (33%?) and is it possible to minimise it by say who owns it, maybe trust, … ? Is it one way as how some people move into house of their dream that they can not afford as PPoR but can afford as IP and over years you move in once you can afford PPoR?
Answer
You are referring to capital gains tax – You only pay this if you sell the property or transfer its ownership to a different structure like a trust or company later in the future
However it would be prudent to record its value at the time it changes from ip to ppor so that you can not pay capital gains tax from PPOR time to eventual sale in the future. Also it is a CGT event so recording the value is important to do.
Talk to an accountant on what best structure suits your financial situation.
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