6 year GCT rule and Interest deductability

[RightValue]

Hi Gang,

I need a bit of advice here please.

If you had lived in an IP and moved out and rented a property, then I believe that the IP can be treated as a PPOR and is CGT free is sold within that 6 year period.

Great.

But while it is an IP (tenant in it and owner in rental accommodation) and negatively geared I take it you can still deduct the interest from your income (well the shortfall between rent and interest). I take it this does not affect the CGT free statues of the now IP?

So when you sell the property say at year 5 after moving out and you have been deducting the negative part of the gearing from your income over the past 5 years, is there any impact on the CGT aspect of the property.

Say you bought property for $250k, lived in it for a short while, then moved out and paid rent - you do not have any ppor in that time. Meanwhile for the next 5 years you continue deducting say $1,300 per month in shortfall between interest and income, plus rates etc (but no depreciation). Then you then sell it for $500k.

I believe it is CGT free and you have had the benefit of deductability of the interest. Is there any add back or altering of the cost base?

You have deducted interest on an investment that in effect looses you money, the only way you get an investment return on the property is through capital gain but there is no tax on this.

Am I right?

thanks

RightValue

 

[BMan]

sounds right to me but i dont know the rules fully

 

[Rob G.]

Why haven't you been deducting depreciation ?

The cost base is irrelevant if you have a 100% main residence exemption at time of disposal ?

Of course you will run all your details past an accountant to check you qualify.

Cheers,

Rob

 

[RightValue]

Why haven't you been deducting depreciation ?

The cost base is irrelevant if you have a 100% main residence exemption at time of disposal ?

Of course you will run all your details past an accountant to check you qualify.

Cheers,

Rob

A dilapidated 110 year old house, nothing new in the place for the past 40 years, nothing to depreciate really, not worth the bother.

 

[marg4000]

Just remember you cannot claim another PPOR while also claiming the IP under the 6 year absence.
Marg

 

[fernfurn]

Can you are claim it as an IP when you sell, if you have had another IP for only the last 2 years of the 6 you have been away, and, would you have to shift back in for a length of time before you sell?

 

[travelbug]

Can you are claim it as an IP when you sell, if you have had another IP for only the last 2 years of the 6 you have been away, and, would you have to shift back in for a length of time before you sell?

You can have as many IP's as you like, for any length of time. But you can only claim ONE as you PPOR> You don't need to move back in.

 

[fernfurn]

If I claim the old property (now being rented) as PPR how do I treat the income (rent) from that property. What do I do about our existing fully owned (i.e. no mortgage) property.

 

[cmason]

If I claim the old property (now being rented) as PPR how do I treat the income (rent) from that property. What do I do about our existing fully owned (i.e. no mortgage) property.

My understanding is scenario:

2005 - buy property 1 and move in
2007 - buy property 2 and move in, property 1 becomes IP
2009 - sell both property 1 and property 2

Property 1 would be exempt for the period 2005 - 2007 and if you were to use the 6 year rule for property 1 for the period from 2007 - 2009 then you would need to pay CGT on property 2 for that period. If you choose not to use the 6 year rule then by default property 2 is exempt from CGT for the period 2007 - 2009 but you need to pay CGT for property 1. Basically for any given period you can only claim one property for main residency exemption whether through 6 year rule or because it was your PPoR.

The scenario where the 6 year rule is beneficial is if you moved out of your PPoR to rent it out and you also rented a property