CGT (6year rule) question

[NewToPI]

Hi all,

I purchased a property in November 1996, I rented it out for the first time in February 1997, the property remained rented until July 2000. I moved to the property in August 2000 and stayed until i rented in out again in June 2002 and the property is till rented out now.

Do I need to pay CGT if I sell it. or can i treat it as my PPOR for the full period I owned it ?

Thanks in advance

 

[DaleGG]

Hi

Yes, you can claim the house was your PPOR for the entire time and as a result, pay no CGT, if you sell, but, only if you do not have another PPOR during that time.

Dale

Originally posted by NewToPI
Hi all,

I purchased a property in November 1996, I rented it out for the first time in February 1997, the property remained rented until July 2000. I moved to the property in August 2000 and stayed until i rented in out again in June 2002 and the property is till rented out now.

Do I need to pay CGT if I sell it. or can i treat it as my PPOR for the full period I owned it ?

Thanks in advance

 

[Gill Bates]

The house that is to be claimed as a PPOR , i assume that when it is tennented , the rent gets added to a persons taxable income, but how are the expenses treated? Are they deductable ( in the light, that the person is claiming it as a PPOR )

 

[Patosan]

G'day Gill,

It's rented as a source of income.
The expenses are certainly deductable regardless of size.

 

[DaleGG]

HI

For what it is worth, I agree.

Dale

Originally posted by Patosan
G'day Gill,

It's rented as a source of income.
The expenses are certainly deductable regardless of size.

 

[NewToPI]

Thanks for your replies

Sounds good. But do I need to live in it before i rent it out for the first time in order to claim it as PPOR for the whole period ? If yes how long ?

 

[DaleGG]

Hi

Yes, you must have lived in it before it was rented for the exemption to apply. There is no minimum time frame as long as you have the utilities registered in your name and you were registered on the electoral role . . .

Dale

Originally posted by NewToPI
Thanks for your replies

Sounds good. But do I need to live in it before i rent it out for the first time in order to claim it as PPOR for the whole period ? If yes how long ?

 

[NewToPI]

Thanks again DaleGG,

I didn't register on the electoral role but as far as i remember i had phone and electricity registered in my name but don't have the bills anymore. looks like i have to do some chasing ups.

Suppose I couldn't prove that i lived in it immediately after I purchased it, how do i calculate CGT.

i am on 70k now, i purchased it for 140000 in November 1996, now it is worth about 420000, it was worth about 320000 in 2000 when i lived in it. one more thing, i purchased another PI in Novemeber 2002, i thought i would mention this to you just in case it changes the calculations

This six year rule thing always confused me and looks like it is a grey area for many accountants, can you recommend a good accounting in Sydney who know about investment properties

 

[Patosan]

Hi Dale,

I thought you needed to show proof of living there for at least 1 year.
Is any time frame really ok ?

 

[DaleGG]

Hi

It's funny how a concept gets around and refuses to go away, isn't it? I hear that old chestnut many times, but, I can assure you that there is nominimum time limit written into the laws.

Dale

Originally posted by Patosan
Hi Dale,

I thought you needed to show proof of living there for at least 1 year.
Is any time frame really ok ?

 

[DaleGG]

LOng - sorry

Hi

The electoral role issue is the icing on the cake, but, is not an essential fact to qualify for this exemption.

If you cannot prove you are eligible for the exemption, then, you would have a calculation that looks something like:

Sale price $420
purchase price $140

Gain $280
Less time used as PPOR during that time (2yrs out of 6) = $93
Equals new Gain of $187
50% exemption because you owned the asset for more than 12 months equal to $93

Equals Taxable Gain of $94
Tax will then be at 48.5% of this Gain or abt $45,000

Ouch. Cry. Drink lots of scotch . . .. . .


Now, obviously I have used base numbers and not added stamp duty or legal fees when you boght it, or, the agents commission and legal fees when you sell - both of which will reduce the first gain above and then reduce the subsequent figures and taxes.

Also, I have used simple numbers and not worked out the PPOR exemption accurately because I used whole years and not a more accurate time frame. I did this to keep the concept simple enough for all of us to follow.


Now, what would happen if you claimed the unit is your PPOR even once you moved out?

Sale price $420
purchase price $140

Gain $280

Exemption due to PPOR approx 1/2 (bought 11/96 rented till 7/00 and then PPOR to now)

Gain now equals $140
Less 50% Exemption because you have owned the asset for more than 12 months equals $70

Taxable Gain $70

Tax Payable at margin tax rate equals $34,000

Still cry and drink lots of scotch . . .



As to a decent accountant in Sydney - NickM from this forum is one of the best accountants going around and so I'd go and have a chat with him.


Dale

Originally posted by NewToPI
Thanks again DaleGG,

I didn't register on the electoral role but as far as i remember i had phone and electricity registered in my name but don't have the bills anymore. looks like i have to do some chasing ups.

Suppose I couldn't prove that i lived in it immediately after I purchased it, how do i calculate CGT.

i am on 70k now, i purchased it for 140000 in November 1996, now it is worth about 420000, it was worth about 320000 in 2000 when i lived in it. one more thing, i purchased another PI in Novemeber 2002, i thought i would mention this to you just in case it changes the calculations

This six year rule thing always confused me and looks like it is a grey area for many accountants, can you recommend a good accounting in Sydney who know about investment properties

 

[Peter_Tersteeg]

Originally posted by Patosan
Hi Dale,

I thought you needed to show proof of living there for at least 1 year.
Is any time frame really ok ?

This concession was put in place as retiring ministers etc are often given diplomatic posts as they exit politics. The posts are usually for about six years and they want their PPOR to be earning an income while they're not using, but they want to avoid CGT for that period if they sell later.

It's deliberatly vague to facilitate this.

 

[Kevmeister]

Ah, another example of politicians looking after themselves. I just love the idea that politicians can set their own pay scales.

 

[NewToPI]

Thanks DaleGG,

looks like I have to try much harder to proove that i lived in it, i still have some of the bills , otherwise i will hold on to it and not pay $350000 CGT

Thanks for the calculations you made

 

[TheBacon]

Originally posted by PT_Bear
This concession was put in place as retiring ministers etc are often given diplomatic posts as they exit politics. The posts are usually for about six years and they want their PPOR to be earning an income while they're not using, but they want to avoid CGT for that period if they sell later.

It's deliberatly vague to facilitate this.

Thanks PT_Bear !!!!

I love a good conspiracy theory !!! Especially the plausable sounding ones

TheBacon

 

[Peter_Tersteeg]

Originally posted by NewToPI
Thanks DaleGG,

looks like I have to try much harder to proove that i lived in it, i still have some of the bills , otherwise i will hold on to it and not pay $350000 CGT

Thanks for the calculations you made

There's a good chance that the utilities companies will still have copies of the bills you ran up whilst you lived there. You may also be able to get records regarding your elctoral role

 

[NewToPI]

Dale

What would happen if I can't prove that i lived in it when i first purchased it (looks like it is going to be very hard for me to proove), now I am thinking of demolishing this place and building a Duplex (council said it can be approved), live in one and sell one for about 480000, The coat of building the Duplex would be around $350000, Will CGT still apply at the same rate ? How much CGT will need to pay when I sell one duplex for 480000 and live in the other one,
Your previous calculations have been great, But the fact that i have to pay a big CGT amount is forcing me to explore other options as well as crying and drinking scotch

 

[DaleGG]

Hi

The tax office accepts your calculations at face value and would only need you to prove your assertions if they bothered to look.

Scotch is good. Very good!

When you develop a block of units, there are lots of issues that complicate this and so it is probably best to sit down with your accountant with more accurate information and see what he/she says . . .

Watch out for :

GST being an issue
Having both units treated as sold even though you are keeping one (may not be an issue for you, but, can be a hidden problem)
CGT and income tax

Good luck

Dale

Originally posted by NewToPI
Dale

What would happen if I can't prove that i lived in it when i first purchased it (looks like it is going to be very hard for me to proove), now I am thinking of demolishing this place and building a Duplex (council said it can be approved), live in one and sell one for about 480000, The coat of building the Duplex would be around $350000, Will CGT still apply at the same rate ? How much CGT will need to pay when I sell one duplex for 480000 and live in the other one,
Your previous calculations have been great, But the fact that i have to pay a big CGT amount is forcing me to explore other options as well as crying and drinking scotch

 

[silversands]

Okay so apologies for resurrecting an ancient thread...

Please could anyone tell me, has anything changed in relation to this?
I have a friend, whose 6 year period of renting out her PPOR as an I.P, are coming to an end. She wants to move back in, for whatever time is required, before setting the whole thing in motion again. I couldn't find anything to suggest a minimum time that she must do this for. Hoping this means there isn't one! Would any accountants or anyone who has done this before, care to comment?

Thanks

 

[Rob G.]

Okay so apologies for resurrecting an ancient thread...

Please could anyone tell me, has anything changed in relation to this?
I have a friend, whose 6 year period of renting out her PPOR as an I.P, are coming to an end. She wants to move back in, for whatever time is required, before setting the whole thing in motion again. I couldn't find anything to suggest a minimum time that she must do this for. Hoping this means there isn't one! Would any accountants or anyone who has done this before, care to comment?

Thanks

Check out the ATO website, TD 51

Cheers,

Rob