Accountant says dont need to do anything...not sure if he's right?

Hi SS'ers,

Tried searching but couldn't really find anything (most of the threads were talking about the opposite scenario) so hoping someone can give me any info...

We've got a rental property (has been a rental since it was built in 2007) but will be moving into that property in about 6 weeks time and thus it will be our PPOR. We expect to live here for possibly 2-3yrs at most.

Do we need to get a Valuation done before we move in for CGT purposes or any other reason? Accountant is telling us no but i remember reading on SS over the years that this is a good idea.....

Anyone know about this sorta thing??

Many thanks in advance!!!

Cheers,
Kim
 
Hi Kim,

You only need a valuation if you're circumstances were the other way around. ie, if you had lived in the property since settlement, then after a number of years wanted to rent it out, then you would need a valuation.

Going from rental to PPOR, you don't need a valuation.
 
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Agree with Dan C, however remember that for the period it is your PPOR and you can't claim your holding costs as tax deductions, to keep records of it all because they will at least get added to your cost base to reduce any capital gains tax when/if you sell.
 
So that you have your cost base for CGT purposes. This means that if you ever sell, you will know what the base value was when you go to calculate how much of a gain you made for taxation purposes. Can save you a lot of money if you sell in the future.
 
It seems a bit odd to me.
I would've thought that if you wanted to claim CGT exemption for the period it was your PPOR, you would need to establish it's value when you took up residence, and again when you vacated.
If you are willing to forego this exemption, then go right ahead.:eek:
 
It seems a bit odd to me.
I would've thought that if you wanted to claim CGT exemption for the period it was your PPOR, you would need to establish it's value when you took up residence, and again when you vacated.
If you are willing to forego this exemption, then go right ahead.:eek:
I'm with morg. You'll still be liable for CGT for the period when it was an IP, so how are you going to figure out how much of the gain is tax-free when you eventually sell, without a valuation?
 
I'm with morg. You'll still be liable for CGT for the period when it was an IP, so how are you going to figure out how much of the gain is tax-free when you eventually sell, without a valuation?

That's what I thought, too. For the sake of a couple of hundred bucks, it would give me peace of mind.
 
I'm with morg. You'll still be liable for CGT for the period when it was an IP, so how are you going to figure out how much of the gain is tax-free when you eventually sell, without a valuation?

If you initially bought an IP then you will apportion capital gain using time, not by market value when you moved in. i.e. use the formula in s.118-185 ITAA97.

Cheers,

Rob
 
If you initially bought an IP then you will apportion capital gain using time, not by market value when you moved in. i.e. use the formula in s.118-185 ITAA97.
If you've not had much growth whilst an IP, and could get a valuation now demonstrating that, do you have the option of using a valuation, or do you have to use time for calculations? If so, why? Why does the order (ie IP then PPOR rather than PPOR then IP) change the method of apportioning capital gains? :confused: (If it's simply that "ATO" and "logic" don't go together, I can live with that. :rolleyes:)
 
hmmm, thats what i originally thought hence why i thought Accountant was wrong...

i think i'll just go ahead and get a valuation.

no intentions of ever selling this house but won't be in it for more than 3yrs probably....then it'll revert back to an IP....

do i want this val upon making this home our PPOR to be as high as possible...and then upon reverting it back to an IP get a val and try and get it valued as low as possible so the CG is minimal??
 
do i want this val upon making this home our PPOR to be as high as possible...and then upon reverting it back to an IP get a val and try and get it valued as low as possible so the CG is minimal??
No, the other way around. :D You want a low val now, so the capital growth is all during the period when it's your PPOR. ;) Then you want a high val when you move out and make it an IP again, to maximise the CGT-free growth.
 
No, the other way around. :D You want a low val now, so the capital growth is all during the period when it's your PPOR. ;) Then you want a high val when you move out and make it an IP again, to maximise the CGT-free growth.

Rob G was spot on when he gave the reference to s 118-185.

118-185(2)

You calculate your *capital gain or *capital loss using the formula:
Capital Gain or Loss amount × Non-main residence days / Days in your *ownership period

Note - No reference to a valuation required there at all.

If you want the section that refers to using a valuation, that is s 118-192

Note the requirements.
(a) you would get only a partial exemption under this Subdivision for a *CGT event happening in relation to a *dwelling or your *ownership interest in it because the dwelling was used for the *purpose of producing assessable income during your *ownership period; and

(aa) that use occurred for the first time after 7.30 pm, by legal time in the Australian Capital Territory, on 20 August 1996; and View history reference

(b) you would have got a full exemption under this Subdivision if the CGT event had happened just before the first time (the income time) it was used for that purpose during your ownership period.

118-192(2)
You are taken to have *acquired the *dwelling or your *ownership interest at the income time for its *market value at that time.

Conclusion - Unless you meet the requirements of s118-192 (which the first poster will not), getting a valuation is not required for tax purposes.
 
I'm sure you guys are right, I'm just curious about the logic (if there is any).

I've had a read but I don't get it. Are you able to tell me what the difference is between the situations when you apportion gains by time (s118-185), and when you use a valuation (s118-192)? Is it about the order (ie whether PPOR then IP, vs IP then PPOR), or something else? :confused:
 
What about the following scenario....

We have had an IP for about twelve years, bought for $156K, spent say $30K over that time. Let's put the base cost at $200K to make it easy.

Let's say its value is now $800K.

What if we moved into it, spent $200K doing a big reno, raising, building under, extending? Say we did that, lived there for two years and sell it for $1.2M.

I had always thought we would only pay tax on the gain from its cost base ($200K) until when we move in ($800K) and that any gain made from then when it becomes our PPOR to when we sell it would be tax free?

Am I interpreting this wrongly?
 
s 118-192 only applies when a PPOR becomes an IP, and only if the PPOR if sold the day before it becomes an IP would have been tax free under the main residence exemption. If at any time it lost that exemption, even partially, this section would not apply.

s 118-185 is when s118-192 doesn't apply.

(And just to cover all bases, I haven't covered properties received if they were part of a deceased estate, commercial properties, split titles, etc. I'm trying to keep the discussion somewhat simple)
 
Am I interpreting this wrongly?

Yep.

118-185(1)

You get only a partial exemption for a *CGT event that happens in relation to a *dwelling or your *ownership interest in it if:

(a) you are an individual; and

(b) the dwelling was your main residence for part only of your *ownership period; and

(c) the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person.

This section applies to you.

118-185(2)

You calculate your *capital gain or *capital loss using the formula:
Capital Gain or Loss amount × Non-main residence days / Days in your *ownership period

(1,200,000-400,000) x 12 years / 14 years.
 
Why does the order (ie IP then PPOR rather than PPOR then IP) change the method of apportioning capital gains? :confused: (If it's simply that "ATO" and "logic" don't go together, I can live with that. :rolleyes:)

It does seem logical to me. You buy a property as an IP you are expected to keep all your documents for tax. You buy as a PPOR, one may never expect to rent it out and may not hold onto all their records for 10 years or whatever before renting it out, so seems logical to be able to use a valuation when going from PPOR to IP but not the other way around.
 
Well...... there goes that little idea I had to move into one of the IPs, renovate and sell it and make a big profit :D.

Just as well really. Hubby never would have gone for it.
 
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