I have a question about CGT. I bought my previous PPOR in December 2000 and moved into it as soon as settlement was completed in February 2001.
In September 2001, I went to the UK for 4 months to visit my family and rented the house out while I was away. The house was rented out two more times while I was in the UK – for 3 months in 2006 and for a year in 2008.
In January 2011, I bought a new house, which I moved into in April 2011. I tried to sell my old house in the interim, but when it didn't sell in the two months I had to use it for short term lets while I tried to sell it in order to pay the interest repayments. Unfortunately, the market was slow and it didn’t sell until March 2012, more than the 6 months allowed by the ATO to have both properties exempt from CGT.
I asked my accountant in early 2011, before I moved into the new PPOR, what the implications would be for CGT if it took longer than 6 months to sell the old house, and he assured me that the base valuation from which CGT is calculated would be taken at the time my old PPOR turned into an investment property (i.e. 2011). However, he is now saying that the valuation needs to be taken at the time I first rented it out in 2001.
I cannot see how this can be correct as there is no doubt that it was my PPOR for ten years and the only times it was rented were when I was overseas visiting family.
Can someone please help me with this as the property has increased a hell of a lot since 2001 but it actually dropped in value between 2011 and 2012, so if the valuation is taken from when the house ceased to be my PPOR it will save me a lot of tax.
If my accountant’s interpretation is wrong, what can I do? Can I instruct him to do it my way or will I need to change accountants?
Thanks in anticipation,
Cate
P.S. I'd appreciate some speedy responses as my return is due to be submitted in a couple of weeks.
Sounds like you may be able to apply the 6 year CGT exemption for absence from main residence s118-145 ITAA 1997
Treat it as 2 separate preiods, up to hte point you purchased the second residence it could be your main residence. Then it would be subject to CGT from that point on.
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 comment, Terry. Up until the point I purchased the second residence, the old house was my home and only property … so I can't understand why the accountant is saying I need to treat it as an investment property from the time I first had a tenant in it.
What can I do if my accountant still insists that he is right? Do I find another accountant, or can I instruct him to do as I think is right?
Were you absent from that house for more than 6 years?
Look at s 118-192 ITAA 1997 and s 118-145 too and send him the links and ask for a please explan.
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
lizu wrote:Thanks for your comment, Terry. Up until the point I purchased the second residence, the old house was my home and only property … so I can't understand why the accountant is saying I need to treat it as an investment property from the time I first had a tenant in it.What can I do if my accountant still insists that he is right? Do I find another accountant, or can I instruct him to do as I think is right?
Your accountant was probably saying that you will be deemed to have acquired the house at the date it was first used to produce income, using a market value cost base.
If you didn't use the absence rule when initially vacated, and don't choose to apply it now, then you will have to apportion non-main residence days from that original deemed date.
Cheers,
Rob
Thanks for your reply, Rob. I'm not sure what you mean by:
'If you didn't use the absence rule when initially vacated, and don't choose to apply it now, then you will have to apportion non-main residence days from that original deemed date.'
I thought that Terry's advice was that I could use the absence rule as I was only absent from the property for 19 months in total. Then the valuation would be taken from the time it ceased to be my PPOR (2011). Is that what you're saying?
Cheers,
Cate
The valuation date is the day it was first used to produce income – this is the first element of cost. This is probably what your accountant was telling you.
If you elect to disregard any capital gain by treating it as your main residence during your latest absence due to living in the new PPOR then you lose the exemption for this new residence for the overlap except perhaps 6 months.
At least it saves the cost of getting a retrospective valuation done, but your new residence may have appreciated more than the old one.
Its your call whether to elect.
Cheers,
Rob
You were right, Terry. I ended up calling the ATO and they said I can apply the 6 year CGT exemption for absence from main residence rule for the time the property was rented on my extended visits to the UK, so it is exempt from CGT while it was my PPOR.
The market value for calculating the CGT is taken from the time I moved out of the old property and into the new property. It is not taken from the time of settlement on the new property as the 6 month overlap applies until it was rented. The ATO also said that as the property sold for less than it was valued for when I first tried to sell it, I can claim a capital loss.
Thanks very much for your help.
Cate
Terry has pretty much answered it for you. With no other PPOR each time you moved out and had it tenanted there would be a 6 year CGT exemption. When you moved back in within 6 years it would reset this time. As each time you moved back in well inside 6 years of absence then you wont have any problems being CGT exempt up to the time you moved into your new PPOR.
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