Capital Gains Tax
- Thread starter Donna L
- Start date
In the case where your PPOR *then* becomes your IP, my understanding is that you want to know the value (X) of the PPOR at the time it became an IP (usually trying to get X as highly inflated as possible), and then CGT is only applicable to the amount over and above X that you sell the IP for.
(If your PPOR became an IP and you subsequently started renting, meaning you did not re-designate another property as your PPOR, then the PPOR can remain CGT-exempt for six further years, I believe).
In the reverse case of the IP becoming the PPOR, logic would suggest a similar approach be taken (ie. find out the value X of the IP at the time it became a PPOR), only this time you would want X to be as low as possible, and your capital gain is how much X has increased over the initial purchase price (plus whatever adjustments are necessary according to the CGT calc).
But I know the ATO aren't necessarily logical.
The big issue in my mind is that when a PPOR becomes an IP and then you sell, you have trigged a "capital gains event" by selling it (I think that's the term). When it's the reverse, the question is when the capital gains tax is payable. Is it when you sell, or is it when the IP becomes your PPOR?
Thinking out aloud, it doesn't make sense if it is when you sell, because then you might have made a capital gain of $20K 25 years ago, and haven't had to pay tax on that until you sell. I don't think the ATO are that generous.
I'll be interest to hear Dale's comments on that one...
(If your PPOR became an IP and you subsequently started renting, meaning you did not re-designate another property as your PPOR, then the PPOR can remain CGT-exempt for six further years, I believe).
In the reverse case of the IP becoming the PPOR, logic would suggest a similar approach be taken (ie. find out the value X of the IP at the time it became a PPOR), only this time you would want X to be as low as possible, and your capital gain is how much X has increased over the initial purchase price (plus whatever adjustments are necessary according to the CGT calc).
But I know the ATO aren't necessarily logical.
The big issue in my mind is that when a PPOR becomes an IP and then you sell, you have trigged a "capital gains event" by selling it (I think that's the term). When it's the reverse, the question is when the capital gains tax is payable. Is it when you sell, or is it when the IP becomes your PPOR?
Thinking out aloud, it doesn't make sense if it is when you sell, because then you might have made a capital gain of $20K 25 years ago, and haven't had to pay tax on that until you sell. I don't think the ATO are that generous.
I'll be interest to hear Dale's comments on that one...
Hi
The sale of a property is always a CGT event. It is only that some properties (PPOR) have exemptions that stop them causing a tax problem.
If the house was your PPOR for 5 years and then you use it is an IP then you would have a vluation at the time that it ceased to be your PPOR. You would then have a Capital Gain based on the sale price less the valuation price, less the costs of selling etc.
Of course, if you did not own any other PPOR during that time because you were renting, or something, then the sale of the old PPOR, now IP, within 6 years of you moving out would still be exempt from CGT.
If the house was your an Ip for 5 years and then became your PPOR than the rules are a little different. In this case, the CG would be calculated as the difference between the purchase price and the sales price (less costs of buy and selling etc) and part of this would be exempt under the PPOR based on the length of time the property was used as your PPOR.
I hope that this helps, despite the complexity.
Dale
The sale of a property is always a CGT event. It is only that some properties (PPOR) have exemptions that stop them causing a tax problem.
If the house was your PPOR for 5 years and then you use it is an IP then you would have a vluation at the time that it ceased to be your PPOR. You would then have a Capital Gain based on the sale price less the valuation price, less the costs of selling etc.
Of course, if you did not own any other PPOR during that time because you were renting, or something, then the sale of the old PPOR, now IP, within 6 years of you moving out would still be exempt from CGT.
If the house was your an Ip for 5 years and then became your PPOR than the rules are a little different. In this case, the CG would be calculated as the difference between the purchase price and the sales price (less costs of buy and selling etc) and part of this would be exempt under the PPOR based on the length of time the property was used as your PPOR.
I hope that this helps, despite the complexity.
Dale
Dale:
So the capital gain would simply be pro-rated according to the length of time the property was an IP versus the length of time it was a PPOR?
So if you had the IP for 5 years then live in it as PPOR for 15 years, and your gain is $100K, then essentially you'd only consider 25% (5 years out of 20) of that gain for CGT?
So the capital gain would simply be pro-rated according to the length of time the property was an IP versus the length of time it was a PPOR?
So if you had the IP for 5 years then live in it as PPOR for 15 years, and your gain is $100K, then essentially you'd only consider 25% (5 years out of 20) of that gain for CGT?
'Evening Kev, Dale & All
Gents, please excuse my being pedantic on this one. If I may; I have a number of IPs and intend to increase the portfolio over time. I currently have the benefit of living in company housing and don't own a PPoR as such.
My first IP used to be my PPoR but became an IP in '96...I don't intend retiring to this property in the future. I will however need to declare a PPoR in about 15 yrs time. If I was to consider moving into one of the current IPs as a PPoR would the same calcs Dale mentioned be applicable (tax law changes not withstanding)?
Is it necessary to see a sale transaction or whatever that says the once IP is now my PPoR?
Thanks for your patience!
Cheers Ian
Gents, please excuse my being pedantic on this one. If I may; I have a number of IPs and intend to increase the portfolio over time. I currently have the benefit of living in company housing and don't own a PPoR as such.
My first IP used to be my PPoR but became an IP in '96...I don't intend retiring to this property in the future. I will however need to declare a PPoR in about 15 yrs time. If I was to consider moving into one of the current IPs as a PPoR would the same calcs Dale mentioned be applicable (tax law changes not withstanding)?
Is it necessary to see a sale transaction or whatever that says the once IP is now my PPoR?
Thanks for your patience!
Cheers Ian
Hi Ian
If we're going to be pedantic, you will have to say whether the PPOR became your IP before 20 August 1996 or after . . .because the rules changed as of this date.
From what you have said, you will have options available to you to either declare different properties as your PPOR through the time, or, stay with just one - the original PPOR.
For simplicity's sake, I would actually stay with the one rather than swap and change given the record keeping requirements and calculations required.
Now, because the house is income producing and has been for more than 6 years without you living in it as your PPOR, then to the letter of the law this house would also be subject to CGT and the calculation will actually depend upon when you moved out.
Does this help?
Dale
If we're going to be pedantic, you will have to say whether the PPOR became your IP before 20 August 1996 or after . . .because the rules changed as of this date.
From what you have said, you will have options available to you to either declare different properties as your PPOR through the time, or, stay with just one - the original PPOR.
For simplicity's sake, I would actually stay with the one rather than swap and change given the record keeping requirements and calculations required.
Now, because the house is income producing and has been for more than 6 years without you living in it as your PPOR, then to the letter of the law this house would also be subject to CGT and the calculation will actually depend upon when you moved out.
Does this help?
Dale
Originally posted by DaleGG
Now, because the house is income producing and has been for more than 6 years without you living in it as your PPOR, then to the letter of the law this house would also be subject to CGT and the calculation will actually depend upon when you moved out.
Does this help?
Dale
This is interesting. Does that mean if I purchase an IP and it produces income for 5 years, and which pt I move into it and it becomes my PPOR, that I would be exempt from paying CGT on it?
Julie
Hi Julie
Yes, that is correct. And, if you move back in within that 6 years for a while then move out again, you have another 6 years of exemption and so on and so on . . .
However, you can only have one PPOR at a time for practical purposes (ignoring the 6 month rule) so this may effect other properties that you own and wish to have as your PPOR.
Dale
Yes, that is correct. And, if you move back in within that 6 years for a while then move out again, you have another 6 years of exemption and so on and so on . . .
However, you can only have one PPOR at a time for practical purposes (ignoring the 6 month rule) so this may effect other properties that you own and wish to have as your PPOR.
Dale
Hi Dale & All
Thanks for the prompt feedback Dale....and yes it does help, thanks.
The date the property became an IP was 21/6/96.
Wondering about the last line of my initial query: thinking further on this last night I came to the conclusion it would simply be a matter of a mathematical calculation done in the accountants office in the relevant tax year. From there I would end up with a figure of $ 'x' (CG) I would have to pay the ATO. Is this correct, or am I barking up the wrong tree?
Cheers Ian
Thanks for the prompt feedback Dale....and yes it does help, thanks.
The date the property became an IP was 21/6/96.
Wondering about the last line of my initial query: thinking further on this last night I came to the conclusion it would simply be a matter of a mathematical calculation done in the accountants office in the relevant tax year. From there I would end up with a figure of $ 'x' (CG) I would have to pay the ATO. Is this correct, or am I barking up the wrong tree?
Cheers Ian
WOW!! That is the best news i've heard for ages.
We currently don't have a ppor and were thinking of moving into our ip sometime in the future, but because it was our ip we weren't aware that if we did it this way within 6 years that it would be exempt from CGT.
So how often can one do this? eg, is is possible to do this from one ip to the next and not pay CGT on that ip? if you had enough ip's and did it every 6-12 months, assuming that the properties produced income from less that 6 years, can you just jump from one to the next and avoid CGT? and does it matter how long I live in the place as my ppor before selling it to not pay CGT?
Finally does this 6 year rule for new ip apply as from date of settlement or is there some other date?
Thanks heaps Dale
Julie
g'day Julie,
Regarding "how long I live in the place as my ppor before selling it to not pay CGT" - I'll leave that one to the experts.
Just a thought, if you are considering moving INTO an IP to make it your PPOR, choose the one that will likely grow the most over the next 6 years ;^)
Regards,
I think my mate Dale got a little out of step here
If you have a PPOR, then move out, you have 6 years to move back in to regain the "no CGT" ruling. In YOUR case, you hadn't "claimed" your IP as a PPOR to start with - thus (as Dale later confirmed) it was an IP from Day one - (and NOT a PPOR) so no CGT exemption applies.
Since you can only have ONE PPOR at any one time period (excluding a 6month ruling which I'm not overly familiar with) - what it boils down to, is that you can have ONE PPOR at any time (and it might be worth moving into one of your IP's just to set this up) - and THEN, after moving out of it, you can continue to claim CGT exemption for up to 6 years of your departure from that PPOR (as long as you haven't moved into ANOTHER property that is your PPOR....) Confusing?? Yeah the written word can tend to be that way.
Regarding "how long I live in the place as my ppor before selling it to not pay CGT" - I'll leave that one to the experts.
Just a thought, if you are considering moving INTO an IP to make it your PPOR, choose the one that will likely grow the most over the next 6 years ;^)
Regards,
now that i think i have a handle on this, can i please have a little more info on :
1. the 6 month rule?
2. for ppor come ip - how long does one have to live in it - for eg, if i bought a place, lived in it for 3 month and then realised i couldnt meet the repayments and as a result rented it out and moved back home, would that be ok?
3. as a ppor come ip come ppor would i be able to claim all the deductions (eg, interest, depreciation, etc) as i would normally for an ip during the ip component?
thanks
julie
Valuer
I'm in the same situation as this - about to move out of a PPOR which will become an IP. You stated I need to get a valuation (as high as possible) for the property. Who do I need to contact to get a valuation? I assume I need to get a Real Estate Valuer not just a Real Estate Agent.
Thanks
Nathan
I'm in the same situation as this - about to move out of a PPOR which will become an IP. You stated I need to get a valuation (as high as possible) for the property. Who do I need to contact to get a valuation? I assume I need to get a Real Estate Valuer not just a Real Estate Agent.
Thanks
Nathan
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