CGT expemption (IP turned into PPOR)?

[TEG]

Hello,

I bought a property two years ago that I immediately renovated after settlement and rented out to tenants straight after the reno was complete. The tenants moved out after 1 year, and I have beeing living in the property as my PPOR for the last year or so.

I am now considering selling this PPOR and want to know whether I will need to pay any CGT if I sell. I read somewhere that if the property was used as an IP immediately after settlement, then you will have to pay CGT, even though itś now used as your PPOR. Not sure if this is true? If so, then it looks like im up for CGT if i do sell..

Thanks!

 

[Terry_w]

Yes, CGT will be applicable. Whether you actually have any tax to pay though will depend on the figures.

 

[BMan]

did you live in it while you rented it?

 

[TEG]

Yes, CGT will be applicable. Whether you actually have any tax to pay though will depend on the figures.

The property has increased in value, so I guess I will be up for CGT if I decide to sell.

If I *did* move into the property immediately after settlement and used it as my PPOR for say 1 year, and then moved out and rented it out, would I still be up for CGT if I sold (assuming the property increased in value)?

 

[Terry_w]

The property has increased in value, so I guess I will be up for CGT if I decide to sell.

If I *did* move into the property immediately after settlement and used it as my PPOR for say 1 year, and then moved out and rented it out, would I still be up for CGT if I sold (assuming the property increased in value)?

Just because it increased in value doesn't necessarily mean tax is payable. You can deduct costs such as stamp duty, legals, agents fees etc.

If you did move into the property initially and establish it as your main residence then it could possibly have been sold CGT free - but this will depend on the exact circumstances such as how long you were absent and whether you or your spouse had another main residence at the same time etc.

 

[coastymike]

From my website

http://www.omegapartners.com.au/2010/12/capital-gains-tax-renting-the-family-home/

Scenario Three

Troy and Mary purchased a property in 2005. They did not move in and rented it out and claimed it as an investment property in their tax return for 2005 and 2006. They then moved into it in 2007 and want to sell the property. Will they pay tax when they sell ?

Troy and Mary would have had to have moved into their investment property ‘as soon as practicable’ for it to have been considered to be their main residence. This means that even though it became their main residence when they moved into in 2007 it was not their main residence from the time they purchased it. Unfortunately for Troy and Mary the ‘absence’ provisions talked about earlier do not apply and they will have to pay tax when they sell. But how do they calculate the amount of the capital gain (or sometimes it’s not worth thinking about but a capital loss) ?

Troy and Mary are eligible for some relief. They are entitled to a partial exemption because they lived in the house. The capital gain or capital loss that Troy and Mary will make is calculated on the number of days the house was not lived in by them compared to the number of days they owned the house.

Let’s work through a simple example. The house was purchased on 1 July 2005 for $300,000 inclusive of all associated costs such as stamp duty, etc. They rented it out from the day they purchased it (they had some great estate agents) and moved into the house on 1 July 2007. They sold the house on 1 July 2008 (it’s strange how Troy and Mary manage to align everything to the tax year) for $500,000 inclusive of all associated costs.

Troy and Mary will have a capital gain of $200,000. The amount that Troy and Mary will need to consider for tax purposes is calculated as

Amount of capital gain x Number of days rented out

Number of days owned

This equals 200,000 x 730 = 133,333

1,095

This amount will be eligible for a discount called the general capital gains tax discount which is currently 50%. This would reduce the capital gain to $ 66,666. This is the amount they would be taxed on.

 

[TEG]

did you live in it while you rented it?

No. I didn't live in it while it was rented out. I only moved in after the tenants moved out.

 

[TEG]

Excellent article! Thankyou coastymike.

From my website

http://www.omegapartners.com.au/2010/12/capital-gains-tax-renting-the-family-home/

Scenario Three

Troy and Mary purchased a property in 2005. They did not move in and rented it out and claimed it as an investment property in their tax return for 2005 and 2006. They then moved into it in 2007 and want to sell the property. Will they pay tax when they sell ?

Troy and Mary would have had to have moved into their investment property ‘as soon as practicable’ for it to have been considered to be their main residence. This means that even though it became their main residence when they moved into in 2007 it was not their main residence from the time they purchased it. Unfortunately for Troy and Mary the ‘absence’ provisions talked about earlier do not apply and they will have to pay tax when they sell. But how do they calculate the amount of the capital gain (or sometimes it’s not worth thinking about but a capital loss) ?

Troy and Mary are eligible for some relief. They are entitled to a partial exemption because they lived in the house. The capital gain or capital loss that Troy and Mary will make is calculated on the number of days the house was not lived in by them compared to the number of days they owned the house.

Let’s work through a simple example. The house was purchased on 1 July 2005 for $300,000 inclusive of all associated costs such as stamp duty, etc. They rented it out from the day they purchased it (they had some great estate agents) and moved into the house on 1 July 2007. They sold the house on 1 July 2008 (it’s strange how Troy and Mary manage to align everything to the tax year) for $500,000 inclusive of all associated costs.

Troy and Mary will have a capital gain of $200,000. The amount that Troy and Mary will need to consider for tax purposes is calculated as

Amount of capital gain x Number of days rented out

Number of days owned

This equals 200,000 x 730 = 133,333

1,095

This amount will be eligible for a discount called the general capital gains tax discount which is currently 50%. This would reduce the capital gain to $ 66,666. This is the amount they would be taxed on.

 

[Melbournian]

you need to work out if there is a capital gain or loss after all the capital costs have been deducted like stamp duty etc.

If there is a capital gain - You need to calculate based on the time say the tenant lived in the property 2 out of 3 years and you live in it 1 year. So your capital gain is only 2/3 of the total amount.

If in doubt, write to the ATO and get a private ruling on your situation. if you had moved in first, there would have been no CGT.

 

[dan c]

did you live in it while you rented it?

How can he rent it out and live in it at the same time?

 

[dan c]

If in doubt, write to the ATO and get a private ruling on your situation. if you had moved in first, there would have been no CGT.

Not necessarily, but it would be calculated in a different way.

 

[JennD]

How can he rent it out and live in it at the same time?

Renting a room out.

 

[BMan]

How can he rent it out and live in it at the same time?

if hes special... lol yeah i saw that mistake
i meant did you live in it when you renoed it. (almost typed rented again!!)

 

[matto_]

it would also depend whether you had another PPOR you were wanting to claim over the same period.