CGT and the 6yr PPoR rule ... can this time frame be extended?

Hello, I understand that you can live away from your PPoR for up to 6yrs and avoid paying CGT if you sold the property.

Example:
I believe it's possible to avoid paying CGT if I live in my PPoR for 2 years, move out to rented accomodation, live in the rented accom for 5.5 years and then move back to my PPoR.

If I move back into my PPoR for 4mths and then sell it, I can avoid paying CGT as I have claimed it as my PPoR within the 6yr timeframe.

Not sure about the 4mth period, I believe that I just have to make the ATO happy and convince them I was living there as my PPoR (electricity and phone bill in my name etc).

Case Study:
If I bought a house with 2 other people (3 names on title) in 1990, lived in it for 2 years and then rented it out until present day (19 years) is there any way I can reduce the amount of CGT that is payable?

I realise the 6 years has way gone, but if I or one of the other 2 people on the title move back in, can I somehow avoid or reduce the amount of CGT that has to be paid?
Or am I liable to pay full CGT?

I paid $92,500 for the house in 1990 and it is has been recently appraised at $530,000 to $580,000. I don't want to pay so much CGT :eek:
 
^ Sorry for the lengthy original post.

In a nutshell, I paid $92,500 for a house in 1990 and it is has been recently appraised at $530,000 to $580,000.

I am thinking of selling it but want to work out how much CGT I have to pay and if I can somehow avoid or reduce this.

There are 3 people on the title (my parents had to go on with me so I could get a loan at the time).

I hope I can move back into it and reduce the amount of CGT payable.
 
Sorry, no way! It would be called the 19yr rule then, not the 6yr rule.
Only way you'll reduce your CGT now is if the value of the property falls back.

The only way you could have reduced the CGT a bit is if you bought it in 1990 for $92,500, and lived in it for 2yrs, and had it revalued when it became an investment (say $105K). If you don't have this revaluation amount then your paying the CGT on the say $550,000 - $92,500 ~ $460K , 50% CGT deduction, so $230K (split 3 ways). So at 30-40% tax rate, you need to pay about $70-$92K CGT all up.

Just a basic calculation. Your calculation will factor in depreciation, transaction cost, etc.

I don't want to pay so much CGT
Sell the property to me for $92500. That way I can help you pay no CGT. :))
 
Or maybe you can try some of these options

Time sale to offset CG against any loss you have in future years.
Pump more money into super to reduce taxable income, and then pay the CGT at a lower tax rate (30%, instead of 40%).
 
This might be a daft question, and by no means meant as advise on what to do......but I was wondering what happens in this scenario:-

You take a new loan out up to 95% (or whatever they'll allow), so you now owe say $522k (based on val of $550k say). You pay off the $92k and have $430k left.

Say you skip town with the $430k and the bank forcloses and sells the house.

Would the ATO come after you for what you would have payed in CGT had you sold it? Or, does CGT dissapear when a foreclosure is involved?

(Sorry for the hijack Shuggy - your post just made me wonder).
 
Thanks for your input mate. Yes i dumped a bunch of dog shares a few weeks ago to offset the CGT from a different place i sold last month so that the share losses would offset the property gains.... i just hope i dumped enough of them so there is no CGT to pay


I wish the govt would change the law to make it a 20 yr rule... not sure i'm too happy about this 6 yr rule thing


Sorry, no way! It would be called the 19yr rule then, not the 6yr rule.
Only way you'll reduce your CGT now is if the value of the property falls back.

The only way you could have reduced the CGT a bit is if you bought it in 1990 for $92,500, and lived in it for 2yrs, and had it revalued when it became an investment (say $105K). If you don't have this revaluation amount then your paying the CGT on the say $550,000 - $92,500 ~ $460K , 50% CGT deduction, so $230K (split 3 ways). So at 30-40% tax rate, you need to pay about $70-$92K CGT all up.

Just a basic calculation. Your calculation will factor in depreciation, transaction cost, etc.


Sell the property to me for $92500. That way I can help you pay no CGT. :))
 
Hmmm, thanks for the tip mate, i will have a think about it


You take a new loan out up to 95% (or whatever they'll allow), so you now owe say $522k (based on val of $550k say). You pay off the $92k and have $430k left.

Say you skip town with the $430k and the bank forcloses and sells the house.

Would the ATO come after you for what you would have payed in CGT had you sold it? Or, does CGT dissapear when a foreclosure is involved?

(Sorry for the hijack Shuggy - your post just made me wonder).
 
You need to also remember that your parents will be liable for CGT too, since they are on the title. If they are pensioners, then obviously, there will be less for them to pay than someone in full-time employ, however if one/both of them are high income earners then the amount that they pay could be considerable.

Maybe you could purchase the property from them for, say, $100k. The CGT would be negligable, however you would be liable for the full Stamp Duty on valuation. Move into the property and THEN if you want to sell it, sell it. Or do you have another PPOR?
 
Nope, that won't help either. CGT is calculated on market value or purchase price - whichever is the higher.

Is it? I knew that Stamp Duty was, but not sure about CGT, hence my post above. You must have posted at the same time as me.:D

Maybe seeking legal/accounting advice would be the best thing to do.
 
Is it? I knew that Stamp Duty was, but not sure about CGT, hence my post above.
Yes you are right, it is Stamp Duty - getting my taxes mixed.

As Coasty Mike says it can be done if you satisfy the ATO that "you dealt with each other at arms length". I suspect that they may have difficulty believing that shuggy would sell a $550K asset to investor888 for less than $100K and still not expect some other benefit in return ;)
 
Yes you are right, it is Stamp Duty - getting my taxes mixed.

As Coasty Mike says it can be done if you satisfy the ATO that "you dealt with each other at arms length". I suspect that they may have difficulty believing that shuggy would sell a $550K asset to investor888 for less than $100K and still not expect some other benefit in return ;)

If he's willing to sell to investor888 for $100k, then I'd be happy to give him $150k instead.:D
 
TD95/8

http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD958/NAT/ATO/00001

"Taxation Determination
TD 95/8

Income tax: capital gains: can a subsection 160ZZQ(11A) election made for the purposes of subsection 160ZZQ(11) of the Income Tax Assessment Act 1936 cover more than one period of absence from a taxpayer's sole or principal residence (SPR)?


FOI status: may be released




This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).



1. Yes. It is not necessary to make a separate election for each period of absence.

2. If a taxpayer has more than one period of absence from a SPR, the election may (at the taxpayer's option) specify any one or more (including all) of the periods of absence.


Example:

June's post CGT dwelling ceases to be her SPR and she rents it for two years. She later re-occupies the dwelling for four years, rents it for a further three years, then sells the dwelling.
Provided June satisfies the other requirements in subsection 160ZZQ(11), she only needs to make one election under subsection 160ZZQ(11A) to treat the dwelling as her SPR for the separate periods of absence.
Commissioner of Taxation
20/4/95

Previously issued as Draft TD 94/D98



References

ATO references:
NO CGT CELL PRE (CGTDET16); NAT 94/6257-1

ISSN 1038 - 8982

Related Rulings/Determinations:
TD95/9

Subject References:
elections;
period of absence;
principal residence

Legislative References:
ITAA 160ZZQ(11);
ITAA 160ZZQ(11A) "


TD95/9

http://law.ato.gov.au/atolaw/view.htm?locid='TXD/TD959/NAT/ATO'&PiT=99991231235958

"Income tax: capital gains: if an election made for the purposes of subsection 160ZZQ(11) of the Income Tax Assessment Act 1936 covers more than one period of absence from a taxpayer's sole or principal residence (SPR), is the six year period referred to in subparagraph 160ZZQ(11)(d)(iii) available in relation to each period of absence?


FOI status: may be released




This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).



1. Yes. The six year period is measured in relation to a 'cessation time' (sub-subparagraph 160ZZQ(11)(d)(iii)(A)). If a dwelling ceases to be a taxpayer's SPR more than once during the period of its ownership, the maximum six year period of income-producing use can apply in relation to each period of absence. All periods of income-producing use during all absences are not aggregated to calculate the six year period.

2. However, in order to be able to exempt a further period or periods of income producing use (i.e. in addition to the six year maximum for the first absence) in relation to the dwelling, it must again become a taxpayer's SPR after each absence for there to be a new 'cessation time' to which subsection 160ZZQ(11) may relate (see paragraph 160ZZQ(11)(a)). Whether the dwelling again becomes the taxpayer's SPR will be a question of fact in each case. Reference should be made to Taxation Determination TD 51 for guidance on factors which may be relevant in deciding this issue.

3. If there are intermittent periods of income producing use during an absence, these periods are aggregated in calculating the six year period (subparagraph 160ZZQ(11)(d)(iii)).


Example 1

Gary works for the Department of Foreign Affairs and Trade and is posted overseas for a period of 4 years. While he is overseas, his post-CGT SPR is rented. On return to Australia, Gary resumes residence in the dwelling for a further period of 4 years. He is posted overseas for another period of 4 years. The dwelling is rented again during this absence. On return, Gary sells the dwelling and elects for the purposes of subsection 160ZZQ(11) for two periods of income-producing use totalling 8 years.
Subsection 160ZZQ(11) treats the dwelling as Gary's SPR during the two periods of absence. This is because the dwelling ceases to be Gary's SPR on two separate occasions and the periods of income-producing use have not exceeded six years in relation to each period of absence.

Example 2

Peta ceases to use her post-CGT dwelling as her SPR and rents it out for five years. She leaves it vacant for one year, rents it out for a further three years, then sells the dwelling.
As there has only been one 'cessation' of use of the property as a SPR, Peta can elect under subsection 160ZZQ(11A) only for the period that ends when the property has been used to produce income for 6 years. The exemption covers the first five years of rental use, the period the dwelling was vacant, and a further one year of rental use. For the remaining two year period of its use, exemption is not available.
Commissioner of Taxation
20/4/95

Previously issued as Draft TD 94/D99



References

ATO references:
NO CGT Cell PRE (CGTDET11); NAT 94/6256-2

ISSN 1038 - 8982

Related Rulings/Determinations:
TD 51
TD 95/8

Subject References:
elections;
income producing use;
period of absence;
principle residence

Legislative References:
ITAA 160ZZQ(11);
ITAA 160ZZQ(11)(a)
ITAA 160ZZQ(11)(d)(iii);
ITAA 160ZZQ(11)(d)(iii)(A)
ITAA 160ZZQ(11A); "
 
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