Hi guys
Ive purchased a property 7 years ago for 200K and now worth 400K.
It has been a principal since purchased.I will be moving into a new house and contemplating renting out my first property which will then become an investment.
I am not sure how long I will keep it however hyperthetically, if I were to sell after being rented out for a year, how much cgt will I be paying?
Or if I were to rent it out for 2 years then move back in and sell down the track, how will it be calculated then?
I hope its not too confusing however trying to gain an understanding on CGT.
Thanks
Get valuation at date of moving out and this will be the cost base – roughly speaking.
Also have the option for keeping it CGT free for up to 6 years s118-145 ITAA 97
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
Hi Terry,
Thank you for your assistance.
So basically, if my I purchased for 200K and now worth 400K. 400K would be my cost base.
Now if I have lived in it for 6 years and rent it out for 1 year then decide to sell or move back in down the track (say rental income is $300 per week over 12 months), how can estimate what my CGT will be (this is on the basis that I have moved out into a new home).
As per the legislation you have provided – I intend on making my new property my main principal place of residential so I think this would rule me out under this legislation right as I believe we are entitled to 1 principal place of residence.
No your cost base is 200k
and CGT will be apportioned between the time it was rented and lived in, basically if you rented it 25% of the time and lived in it 75% of the time, then only 25% of the CGT should be assessable.
You have to ask yourself if what you are doing is worth it if you are wanting to sell it in the short-term anyway. You can sell now, claim main residence exemption and pay no tax, or rent it for a year, sell it and then be subject to CGT.
And the 6 year rule can only apply to ONE property/your PPOR, so you could use it and apply the exemption but keep in mind that you will lose a portion of your main residence exemption on the new property that you are then going to movie into.
Basically, cant own 2 properties and sell at different times and claim 100% main residence exemption for both, one of them has to lose out. Since you are at a 200k gain on your first one, the decision would be obvious at this point in time.
As per what terry has already stated.
– get a professional valuation done when you move out. (the higher the better…) cost around $350-500.
– Your 6 year exemption on that property still remains even if you sell one year later.
– Ie property between years 1 – 6 increased in value 200k, You get a nice high valuation in at 410k-420k. and then you rent the property for a year and perhaps you sell in year 7 for 410k. IN that Year 7 Your capital gain would be zero. Because your valuation (cost base 410k after 6 years) did not increase.
As the opposite example if you were to sell your property for 450k.
Your capital gain would be 40k.
You would have owned the property as a investment for longer then a year. Entitled to 50% CGT exemption.
So your 40k would then be taxed at 20k.
and that 20k is taxed at your marginal tax rate.
Ie if you earn 100k then your income for that year is 120k. So it would be on your Marginal rate 37 cents
$7400 CGT roughly ( But that can be offset by capital losses previously incurred or capital expenditure on the house)
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