Capital Gains Tax for PPOR

[ThePod]

Hi All

We bought a house October(2011) last year which already had tenants signed to a lease to expire in April(2012) this year.

We want to move in once the tenants lease expires in April and make this home our PPOR.

My question is:

What will happen if we sell this property in a few years time? Will we still have to pay capital gains tax if it grows in value?

It was purchased for $450k in October 2011 and don't think it has had any growth at all since then. Would we have to get it revalued before we move in to show that it hasn't grown in value in the short time it was an investment property so that if we are to sell in 5,10 or 20 years time we don't have to pay capital gains tax?

Thanks guys.

 

[dan c]

The short answer is yes, you will have to pay CGT if you sell, based on the time it was an investment property.

Say you sell in April 2014. Total ownership time is 30 months, time it was an investment property was 6 months.

6/30 (or 1/5) of the total capital gain will be taxable, then this is halved, as you have had the asset for over 12 months.

A valuation is only required if you go from PPOR to IP. In our case, you are going the other way.

 

[ThePod]

Hi dan c

This helps. Thanks for your response.

I guess if we end up re-renting it out after a few years it will mean that we pay capital gains on the 6months(Oct11-Apr12) it was a rental and the remaining time we rent it out if we ever sell. Not sure if this makes sense....

We plan to live in it for a while however I'm just thinking ahead if we were to ever-Sell or Rent it out again. E.G. Investment to PPOR to Investment again.

Cheers

 

[Terryw]

It is a bit tricky as CGT is calculate differently for a IP becoming a PPOR v a PPOR becoming an IP

If you were to rent it first, then move in and then out again it would be a PPOR becoming a rental for the second period - and then you probably would need a valuation.

The first period would have CGT calculated on a time basis,
The second period on growth since you moved out again (assming no exemptions).

Dan, is this correct?

 

[dan c]

The Act talks about a valuation being needed when the property 'first becomes income producing'. As it was income producing to begin with, I believe that any further periods of renting would just be calculated on the 'time used / time held' method as described above.

 

[Brett IP]

If you have two houses, a PPOR and IP, and switch between the two a few times (i.e rent it out then move in then rent it out again etc) at which time you are obtaining an income for the one rented, can you still choose which one to assign Capital Gains tax to?

So you had your first house, then bought a second as an IP, then switch between the two. From that date you bought the IP can you choose which house to assign CGT to for the entire period?

Hope that makes sense

 

[Terryw]

You must first live in a property to class it as your main residence.

Any CG issues only need to be determined in the year of the sale. So you would have a choice of which property you could class as your main residence delayed until that time - assuming you have more than one which could be classed as main residence.