Capital Gains Tax - Principal Place of Residence

[PDP]

A thought came to mind but require some clarification.

Situation:
- 24 yrs old
- Living at home with parents (Melbourne)
- 3 IP (all in Melbourne)

Thought:
- I know that if I was to sell 1 of these investments I would incur CGT, but what if I was to change one of the places I was thinking to sell into a PPR.
- Is it an easy process of advising the State Revenue Office that I wish to convert one of the investments into a PPR, then sell it within like a month of when it has been classified as a PPR?
- What is the minimum time frame you have to stay in the property before it can been called a PPR?

Reason:
- Was thinking in flipping a PPR ever year on top of purchasing and holding other IP's to pay off the loans quicker with the chunks of money made from selling PPR whilst still living at home for lets say the next 5 years.
- Obviously this will be subject to buying under market value or properties which I can value add/renovations to make quick capital gains.

Have you done this before?
What is your take on this kind of strategy?

 

[superAndrew]

Thought:
- I know that if I was to sell 1 of these investments I would incur CGT, but what if I was to change one of the places I was thinking to sell into a PPR.
- Is it an easy process of advising the State Revenue Office that I wish to convert one of the investments into a PPR, then sell it within like a month of when it has been classified as a PPR?
- What is the minimum time frame you have to stay in the property before it can been called a PPR?

Unfortunately it's not as easy as that. You will still have to pay tax for the capital gain for the period it was an IP. So you will get a partial exemption.

Here is more info:
https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Selling-your-home/

Andrew

 

[yee3890]

Agree with Andrew. You need to pro-rata the portion that you claims for tax deductions while you are treat as investment property.

 

[Terry_w]

A thought came to mind but require some clarification.

Situation:
- 24 yrs old
- Living at home with parents (Melbourne)
- 3 IP (all in Melbourne)

Thought:
- I know that if I was to sell 1 of these investments I would incur CGT, but what if I was to change one of the places I was thinking to sell into a PPR.
- Is it an easy process of advising the State Revenue Office that I wish to convert one of the investments into a PPR, then sell it within like a month of when it has been classified as a PPR?
- What is the minimum time frame you have to stay in the property before it can been called a PPR?

Reason:
- Was thinking in flipping a PPR ever year on top of purchasing and holding other IP's to pay off the loans quicker with the chunks of money made from selling PPR whilst still living at home for lets say the next 5 years.
- Obviously this will be subject to buying under market value or properties which I can value add/renovations to make quick capital gains.

Have you done this before?
What is your take on this kind of strategy?

OSR don't administer income tax, the ATO do, but no need to notify them about changing use.

As the property is a rental now, assuming you never lived in it, it will always be subject to CGT based on a time basis.

What you should have done was live in one or all of these properties from day 1 and then you could have possibly got the main residence CGT on one of them.

 

[MightyWill]

OSR don't administer income tax, the ATO do, but no need to notify them about changing use.

As the property is a rental now, assuming you never lived in it, it will always be subject to CGT based on a time basis.

What you should have done was live in one or all of these properties from day 1 and then you could have possibly got the main residence CGT on one of them.

Very true and a lot of people get caught on this. If you don't move in on settlement, then it's always going to be up for CGT. The CGT is based on the time basis.

Even if you bought a place with the intention of moving in as PPOR but it has tenants in it post settlement, then you have to pay CGT.

The beauty of moving straight in is that you can rent it after a year and move back in after 5 years and pay no CGT.

 

[PDP]

ah some great tips there guys. Greatly appreciate it.

Why I am asking is because my next purchase IP I make, I have the intention of selling within 1 year to make a profit (buy below median and conduct renovations) to help pay off in lump sums the debts in IP 1 2 3. That I don't want to incur CGT so that's why I want to make it a PPOR however I won't be living in the property but still at home.

So your saying that if I buy IP 4, specify that it is a PPOR and I move in say for 2 weeks and ensure my bills and stuff go to that address to proved I have stayed there. Then after that 2 weeks I could advertise it for rent and rent it for 1 year, once that lease ends after 1 year, I "move back in" (I'm actually not but still staying at home) and conduct renovations and sell it within a couple of months time. Would I still be then up for CGT OR would I make the lump sum differnce from purchase price and sale price?

 

[Mitch1]

ah some great tips there guys. Greatly appreciate it.

Why I am asking is because my next purchase IP I make, I have the intention of selling within 1 year to make a profit (buy below median and conduct renovations) to help pay off in lump sums the debts in IP 1 2 3. That I don't want to incur CGT so that's why I want to make it a PPOR however I won't be living in the property but still at home.

So your saying that if I buy IP 4, specify that it is a PPOR and I move in say for 2 weeks and ensure my bills and stuff go to that address to proved I have stayed there. Then after that 2 weeks I could advertise it for rent and rent it for 1 year, once that lease ends after 1 year, I "move back in" (I'm actually not but still staying at home) and conduct renovations and sell it within a couple of months time. Would I still be then up for CGT OR would I make the lump sum differnce from purchase price and sale price?

This is what was said...
You can live in it then after a year, rent it out, move back in 5 years later...

If you live in it for 2 weeks, then advertise it for rent, you are publicly declaring it is a RENTAL, therefore CGT applies.

 

[travelbug]

You can't just "say" your living there. Moving in for 2 weeks won't do it eitrher. They look at intention.
Obviously if you moved in for 2 weeks then advertised it, it was never your intention for it to be a PPOR.

PPOR stands for Principal Place of Residence. That's the definition and what it means. Not pretend I'm living there so I can defraud the Govt.

If you do live in it at the start you can then move out and rent it for up to 6 years and not pay CGT. You do not need to move back in if sold within the 6 years of you moving out.

 

[Terry_w]

The relevant piece of law is s 118-145 ITAA97. This says, basically, if you are absent from your main residence you can still count it as your main residence for a period of up to 6 years after you move out.

There is no definition of main residence, no minimum time that you have to live in a property to be able to treat it as the main residence.

However, If you got audited how could you justify it was your main residence if you stayed for just 2 weeks? Will you maintain a room at another property? will you transfer all addresses, mail, electoral roll, friends, etc

 

[D.L]

The relevant piece of law is s 118-145 ITAA97. This says, basically, if you are absent from your main residence you can still count it as your main residence for a period of up to 6 years after you move out.

There is no definition of main residence, no minimum time that you have to live in a property to be able to treat it as the main residence.

However, If you got audited how could you justify it was your main residence if you stayed for just 2 weeks? Will you maintain a room at another property? will you transfer all addresses, mail, electoral roll, friends, etc

Hi Terry_w,

Just to clarify, when you say you can count it as a main residence for a period of up to 6 years...so if you live in the PPOR for 12 months from Day 1, and then rent it out, you must move back in after 5 years of leasing it out (i.e. 1 year living in PPOR, and 5 years of renting it out, and then move back in)?

Cheers,
D.L

 

[Terry_w]

Hi Terry_w,

Just to clarify, when you say you can count it as a main residence for a period of up to 6 years...so if you live in the PPOR for 12 months from Day 1, and then rent it out, you must move back in after 5 years of leasing it out (i.e. 1 year living in PPOR, and 5 years of renting it out, and then move back in)?

Cheers,
D.L

no need to move back in to claim the 6 years