Capital Gains Tax Question

[Shaggy]

I just wanted to clarify something about Capital Gains. I have a property I've owned for quite long time (can't remember exactly right now). I lived in it initially and then I rented it out for more than 10 years and now I am considering living in it again for a period of time.

As I understand it capital gains will still be liable due to it having been rented for more than 6 years but will my living in it again make any difference to the % that it would be calculated on it if I subsequently decided to sell it?

Thanks

 

[Terry_w]

I just wanted to clarify something about Capital Gains. I have a property I've owned for quite long time (can't remember exactly right now). I lived in it initially and then I rented it out for more than 10 years and now I am considering living in it again for a period of time.

As I understand it capital gains will still be liable due to it having been rented for more than 6 years but will my living in it again make any difference to the % that it would be calculated on it if I subsequently decided to sell it?

Thanks

Living in it may affect the calculations but the period you are absent will still be subject to CGT.

There are 2 lines of thought on this
1. Only the excess over the 6 years will be subject to CGT, or
2. Because you went over 6 years the whole 10 years will be subject to CGT.

 

[Paul@PFI]

Cgt

Terry's answer wasnt quite clear and could be misconstrued by some reading different interpretations.

You work out the total capital gain including any improvements you didnt deduct in the process and allowing for acquisition and seling costs etc. Then the total gain must be apportioned. Typically based on days. In my example following I will use years for simplicity.

For example lets assume you bought it 15 years ago and lived in it for 5. The longer you lived it the better. Eg Total gain is $400,000

$400,000 x 10yrs rented divided by 15 years total ownership period= $266k taxable gain (gross)
Less 50% discount = $133K.
Taxable gain is $133K.

You cant look at its value when it changed use and just calc gain based on that. That a common mistake. Apportionment rule is contained in tax law.
Also one key assumtion is you are a resident now. Non-residents might lose some or all the CGT discount or have an apportionment issue. Valuation needed.

So to answer your question the period you lived in it does affect the CGT calculated taxable value.

 

[Shaggy]

Thank you both for your answers, that really helps. So while living it again for a while won't remove the tax burden, it might help a little bit.

 

[Rob G.]

I lived in it initially and then I rented it out for more than 10 years and now I am considering living in it again for a period of time.

Potentially s.118-192 could apply depending on acquisition date and initial use.

If initially fully exempt PPOR and acquired after 20 August 1996 (and not from a deceased estate) then the cost base is market value when first rented.

If the above is true, then this is then also the deemed time of acquisition for apportioning by time for main residence exemption.

So for the 10 years after vacating, six may been deemed as your main residence if you have elected to treat this as your main residence (s.118-145).

If you have elected to treat another dwelling as your main residence then all of the past 10 years are non-main residence days.

Cheers,

Rob

 

[Terry_w]

Potentially s.118-192 could apply depending on acquisition date and initial use.

If initially fully exempt PPOR and acquired after 20 August 1996 (and not from a deceased estate) then the cost base is market value when first rented.

If the above is true, then this is then also the deemed time of acquisition for apportioning by time for main residence exemption.

So for the 10 years after vacating, six may been deemed as your main residence if you have elected to treat this as your main residence (s.118-145).

If you have elected to treat another dwelling as your main residence then all of the past 10 years are non-main residence days.

Cheers,

Rob

Hello Rob,

Could s118-185 apply in this case?

Owned for 10 years, lived in for 1, then rented for 9. 6 of the 9 years classed as temporary absence under s118-145 so 3 years of gains would be assessable
CG x 3x365/(9 x 365)
CG x 1095/3285
Assessable CG = CG x 33.33%

 

[Rob G.]

Yep.

But cost base first element being market value at end of year 1 ... not year 7 according to the ATO interpretation

Cheers,

Rob

 

[Paul@PFI]

Cgt

ID 2003/112 I think. Its subject to one big issue....No other Main residence.
If taxpayer moved out to rent it and buys elsewhere same rule cant apply.

Potentially s.118-192 could apply depending on acquisition date and initial use.

If initially fully exempt PPOR and acquired after 20 August 1996 (and not from a deceased estate) then the cost base is market value when first rented.

If the above is true, then this is then also the deemed time of acquisition for apportioning by time for main residence exemption.

So for the 10 years after vacating, six may been deemed as your main residence if you have elected to treat this as your main residence (s.118-145).

If you have elected to treat another dwelling as your main residence then all of the past 10 years are non-main residence days.

Cheers,

Rob

 

[Rob G.]

You can move out, buy elsewhere and actually occupy the new dwelling.

All that is required for the absence rule is an election to deem the original as your main residence.

This still does not affect the deemed acquisition date for first use to produce income.

They are independent.

Cheers,

Rob