Capital Gains Tax Exemption

[D_One]

If you buy a property, rent it out for 6 months before moving in. If you then decide to sell it in 10 years, does one get a proportion under CGT exemption or does one have to pay Capital Gains Tax on the total gain?

 

[Angel]

I too would like to know about a similar scenario:

In retirement, long after the PPOR has been sold CGT free, we then live in one of the IPs. Is the CGT paid upon any later sale only calculated for the years that it was an IP?

 

[jrc]

To first question:

eg property owned 10 years, IP for first 6 months PPOR thereafter, taxable capital gain one-twentieth. Doesn't matter when the increase in value occurred ie you can't crystallise the gain by valuing the property at the time it became your PPOR

To Angel, similar response, except if you die with the IP as your PPOR then if it is sold within two years of your death your beneficiaries may not be up for CGT

 

[Angel]

Thanks jrc.

So to clarify, say we rent it out for ten years then live in it for a further ten years, the CG would be calculated on 10/20s or a half.

 

[geoffw]

I thought that the answer depends on whether you had another PPOR. If you didn't have one when you were renting out, you may be able to keep the exemption. Clarification from somebody who knows would be useful!

 

[Marcoz]

I too have a question regarding to CTG.

Four years ago I brought my first home with the FHOG and after living there for the first year as my PPOR I moved back home and rented out as IP. If I buy another IP property will I miss out the exemption from CGT on my first home if I decide to move back within the 6 years period?

 

[D_One]

To first question:

eg property owned 10 years, IP for first 6 months PPOR thereafter, taxable capital gain one-twentieth. Doesn't matter when the increase in value occurred ie you can't crystallise the gain by valuing the property at the time it became your PPOR

Thanks JRC, that makes sense, but why would the CGT be 1/12th? I would imagine it would be 1/20th?

 

[Terry_w]

Thanks jrc.

So to clarify, say we rent it out for ten years then live in it for a further ten years, the CG would be calculated on 10/20s or a half.

generally unless you use the 6 year rule exemption after you move out.

 

[Angel]

Aren't you supposed to be on holidays Terry?

 

[Terry_w]

Aren't you supposed to be on holidays Terry?

Hi Angel, I am holidaying right now in a foreign land, but the lure of the somersoft keeps bring me back...

 

[BMan]

generally unless you use the 6 year rule exemption after you move out.

would that only apply if you lived there before you rented it out tho?
as this was rented out then moved in how do you claim the 6yr rule especially since you were living in a PPOR sold it and then moved into the IP

 

[Terry_w]

would that only apply if you lived there before you rented it out tho?
as this was rented out then moved in how do you claim the 6yr rule especially since you were living in a PPOR sold it and then moved into the IP

Yes. it could only apply to the period after living in it and moving out.

 

[dan c]

I thought that the answer depends on whether you had another PPOR. If you didn't have one when you were renting out, you may be able to keep the exemption. Clarification from somebody who knows would be useful!

Not if the property was rented from day one of the ownership period.

To qualify for the main residence exemption you must move in 'as soon as practicable' after settlement.
If it is rented and you move in six months later, you haven't met the 'as soon as practicable' qualification for main residence exemption.

 

[coastymike]

Where in section 118-145 does it mention the words as soon as practicable ?

Dan you are confusing the main residence exemption with the main residence absence provisions.

Clarify - brain still on holiday mode. Think you actually mean main residence absence wont apply if the property was never your main residence. Reason I had a client tell me another accountant told them you couldnt apply the absence provisions unless it was your main residence from the start. That is incorrect.

 

[Paul@PFI]

Mike -Yes & even a non-resident can use the MR exemption in some instances. The MR exemption does not have a tax residency test. .

 

[dan c]

Hi Mike,

s118-135 states:

If a dwelling becomes your main residence by the time it was first practicable for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence.

The ATO commentary says that if it is rented when you take ownership, you haven't moved in as soon as practicable.

I'd argue that delays due to an overseas posting or an unforseen event are treated differently than rental income for 'first practicable' purposes.

 

[dan c]

Reason I had a client tell me another accountant told them you couldnt apply the absence provisions unless it was your main residence from the start. That is incorrect.

I agree with you there. It doesn't have to be a MR from day one to access the absence provisions.

 

[HD_ACE]

Hi Mike,

s118-135 states:

If a dwelling becomes your main residence by the time it was first practicable for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence.

The ATO commentary says that if it is rented when you take ownership, you haven't moved in as soon as practicable.

I'd argue that delays due to an overseas posting or an unforseen event are treated differently than rental income for 'first practicable' purposes.

Isnt this just saying that if you move in as soon as practible that the time between settlement and you moving in is classed as your main residence. If not moved in as soon as practible ie rented for 12 months then its your ppor when you move in? And the first part will not be exempt from cgt.

Cheers

 

[dan c]

Isnt this just saying that if you move in as soon as practible that the time between settlement and you moving in is classed as your main residence. If not moved in as soon as practible ie rented for 12 months then its your ppor when you move in? And the first part will not be exempt from cgt.

That's my reading of it.