4 year rule and 6 year rule for PPR ..surprise

[redsquash]

Is this correct?

Under the 4 year rule, ie
if buy land you intend to move in to a property within 4 years no CGT is payable if it is to be your main place of residence

So you can buy land and then if your intention is to make this your PPR then you can back date when the place became your PPR.
eg I buy land in 2007 build a place later in 2008 and rent it out for a few years.
In 2010 I move in and this is now my PPR.

I now sell this in 2012 .
I have made a capital Gain from 2007 until 2012 but this will not attract CGT, since it is deemed my main residence

I spoke to the tax office about this but just want to be sure I didn't misunderstand.
In my case I have no main residence for tax puposes.

This thread is not concerned with the 6 year rule so please dont go off topic.

 

[Rolf Latham]

Hiya Red

Interesting, just recently settled on a block

What constitutes "intent" or more to the point proof of intent of PPOR status as far as the ATO is concerned ?

If Red doesnt know offhand, Accountants or other learned folk please ?

ta
rolf

 

[Rob G.]

You must move into your PPR as soon as is practicable.

So ... if it initially has a tenant, then that period is counted for CGT.

Cheers,

Rob

 

[Simon]

What if you buy the land and have PPOR plans drawn up then your wife shoots through and you need to sell it?

In my case I made a handy $50K profit but this was reduced by the fees I spent on builder, architect and council fees etc...

So is my sale CGT free or Can I reduce the cost base by the money I spent if CGT is payable?

I sold my previous PPOR not long after buying this one - certainly within the allowable 6 month overlap period. But I never occupied the second PPOR as it was slated for demolition.

Cheers,

 

[redsquash]

Complex CGT issue

Hiya Red

Interesting, just recently settled on a block

What constitutes "intent" or more to the point proof of intent of PPOR status as far as the ATO is concerned ?

If Red doesnt know offhand, Accountants or other learned folk please ?

ta
rolf

Hi rolf
Proof of intent was not mentioned.
Rolf , give the tax office a ring but don't speak to a gremlin at the front desk as they know very little.

In the past the upper level tax people have been exceptionally helpful, but I was very dissatisfied with the lady I spoke to . I was referred to several people before getting her and I suspect she was not sufficiently high in the food chain to give me the most qualified answer.
If someone says let me check with someone else then you need to speak to that other person.

I would be interested to hear the outcome

 

[redsquash]

What if you buy the land and have PPOR plans drawn up then your wife shoots through and you need to sell it?

In my case I made a handy $50K profit but this was reduced by the fees I spent on builder, architect and council fees etc...

So is my sale CGT free or Can I reduce the cost base by the money I spent if CGT is payable?

I sold my previous PPOR not long after buying this one - certainly within the allowable 6 month overlap period. But I never occupied the second PPOR as it was slated for demolition.

Cheers,

Simon, my guess is
...........since you did not move into the residence it was not a PPR, though it was a potential PPR.
I hope I am wrong for your sake.
You should be able to reduce the cost base. What is your reason for not thinking you can?

 

[Gremlin]

Hi rolf
give the tax office a ring but don't speak to a gremlin at the front desk as they know very little.

Hey!!

 

[AVD]

Intent is most likely arranging for rent valuations with PM's, researching rental statistics, perhaps advertising the IP as up for rent, things like that.

Alysha

 

[redsquash]

I am now looking through the Guide to Capital Gains Tax 2008 Booklet i just received but cant fined the 4 year rule about moving in.
Can anyone direct me to some link?

 

[travelbug]

Hi I found this:-
The very nature of the sole or principal place of residence exemption implies the existence of a residence in which a person lives. However the legislation extends to cover situations where a person:-

* builds a dwelling to live in on a vacant block of land; or
* completes the erection of a dwelling; or
* builds a dwelling after demolishing an existing or partially completed dwelling; or
* repairs or renovates a dwelling.

In these cases a person may claim an exemption provided that the person resides in the dwelling for at least three months and the time from acquisition to completion of the work is less than four years. In the event that the person owns an existing residence during the construction period an election should be made.

On occasions, a person may cease living at their sole or principal place of residence. When this occurs the person may elect to have this residence continue to be treated as their sole or principal place of residence. If the residence is used for income producing purposes, such as deriving rental income, the exemption runs for a period of six years. After six years any capital gain is assessable on a pro rata basis. This concession has particular application in situations where work requires a temporary or extended relocation.

google - principal place of residence
There is a bit of info there.
good luck

 

[redsquash]

Thanks LyneeD , but that info is where you have an existing property.
Also I think my query is a little different.
The tax The ATO also explained the 4 years a little differently

http://www.ato.gov.au/individuals/content.asp?doc=/content/36890.htm

here is a cut an paste from the tax office I finally located .
I have underlined the difference which is critical

Choosing to treat land as your main residence while you build

Generally, if you build a dwelling on land you already own, the land does not qualify for exemption until the dwelling becomes your main residence for capital gains tax (CGT) purposes.

Vacant land may also be treated as your main residence if it is vacant because your home has been destroyed.

However, you can choose to treat land as your main residence for up to four years before the dwelling becomes your main residence in certain circumstances. You can choose to have this exemption apply if you acquire an ownership interest (other than a life interest) in land and you:

* build a dwelling on the land
* repair or renovate an existing dwelling on the land, or
* finish a partly constructed dwelling on the land.

There are a number of conditions that you must satisfy before you can claim the exemption. You must first finish building, repairing or renovating the dwelling and then:

* move into the dwelling as soon as practicable after it is finished, and
* continue to use the dwelling as your main residence for at least three months after it becomes your main residence. A period in which you choose to treat a dwelling as you main residence under the continuing main residence status after dwelling ceases to be your main residence rule is taken into account in working out the three month period.

Period for which the land is exempt

The land, including the dwelling that is being built, renovated, repaired or finished on it, is exempt for the shorter of the following periods:

* the four year period immediately before the date the dwelling becomes your main residence, or
* the period between the date you acquired the land and the date the dwelling becomes your main residence.

However, if after you acquired the land you or someone else occupied a dwelling that was already on the land, the period of exemption starts from the date that dwelling was vacated.

 

[Rob G.]

Redsquash ... in respect of your first post:

You get up to 4 years provided you build & move in as soon as practicable - this means you can't build, rent then occupy.

Cheers,

Rob

 

[ggumpshots]

Redsquash ... in respect of your first post:

You get up to 4 years provided you build & move in as soon as practicable - this means you can't build, rent then occupy.

Cheers,

Rob

Rob,
it is not practical to work in one state but live in a ppr in another state, so I would say your comment is incorrect, if this scenario took place.
If you rented in the same suburb as your PPR then I would say you are correct
You could build, rent , then occupy a few years later if it was practical to occupy.
eg you were posted back from vic to qld within 4 years.

Even then If you lived 2 hours drive to work from your PPR that might be deemed not practical to move in in my view.
Doesnt this hinge on the word practical?
Does the above situation change your view

 

[Rob G.]

Who said anything about living in a PPR ?

Both the 4 year pre- and 6 year post occupying is about a property being DEEMED to be your main residence while you don't actually occupy it.

Cheers,

Rob

 

[redsquash]

Before posting this thread I spoke to the tax office.
I also read the tax office web site on this and other sources.

My understanding is that part of the 4 year rule allows you to retrospectively claim a place as your PPR. You must move in within 4 years. That is what the 4 year rule is all about.
If you meet the ATO criteria , you can move into a place in 2012 which was rented out from 2009, yet no cgt will be assessed on sale as it will be deemed as your PPR from 2009
The 6 year rule is irrelevant to this thread . I only mentioned it so other people didn't go of topic by talking about it

I think what LYNNED has written is true but it does not fall within the scenario I first put forward.

I will ring the tax office again but before doing so want to be clear on the issues and sort out the facts. I am not sure i am correct so others input is valuable.

 

[Rob G.]

What if you buy the land and have PPOR plans drawn up then your wife shoots through and you need to sell it?

In my case I made a handy $50K profit but this was reduced by the fees I spent on builder, architect and council fees etc...

So is my sale CGT free or Can I reduce the cost base by the money I spent if CGT is payable?

I sold my previous PPOR not long after buying this one - certainly within the allowable 6 month overlap period. But I never occupied the second PPOR as it was slated for demolition.

Cheers,

I had forgotten about this question !!!

Basically, no living structure on the land when sold = no main residence.

Intention does not matter, as s.118-150 requires you to occupy the residence as soon a practicable within 4 years AND live in it for at least 3 months.

Should have put a caravan on it !!

Add costs of planning etc. to cost base.

Hopefully you held the land for more than 12 months.

As regards the s.118-140 6 month overlap, it stipulates acquiring a "dwelling", so a vacant block of land seems not to qualify. Need to check with the ATO on that one. Again, maybe should have had a caravan on it ?

Cheers,

Rob