CGT on investment turned PPOR

[simonjulie]

Hi all

We are thinking of moving into one of our investment properties in Sydney and making it our PPOR. My questions is, if we renovate and sell it within a short timeframe will it attract CGT from the time it was an investment up to the time it became our PPOR. Our accountant suggested that we get it valued at the end of the tenancy before we renovate or move back in.

Also, if we buy another PPOR and renovate and sell within a matter of months will we attract CGT because we would be viewed as traders or is PPOR exempt from this no matter what the timeframe?

Would appreciate anyone shedding some light on these issues?

Thanks
Julie

Audentes Fortuna Juvat
Fortune Favours the Bold

 

[DaleGG]

Hiya Julie

The IP is subject to CGT and the amount of profit declared will be based on a time basis. That is, a linear equation. No valuations are required or even useful. The valuation rule is only appropriate when the house was first a PPOR and then becomes an IP.

The PPOR is always exempt from CGt when it is sold if it was your only PPOR duing that time. However, if you continually buy a PPOR and do it up and sell it within a short time the tax office may eventually consider whether you are in the business of this activity and if so attempt to tax you on the profit.

Have fun

Dale

 

[simonjulie]

Thanks Dale,

So if I move into an investment property that has been rented for a number of years and make it my PPOR and stay in it for a reasonable amount of time it will be completely exempt from CGT when I sell?

Cheers
Julie

 

[skater]

I could be wrong, but that is not the way I see it. I think it would be apportioned for the time it was your PPOR.

 

[Mry]

No chance Simonjulie. Once you have a house that loses its PPOR protection, you will have to account for CGT on disposal.

 

[simonjulie]

Hi Folk
Below is three answers to my example
This is just so I can understand this in simple terms(I'm a bit slow)

If a property is an investment for the first five years and then I move in to it as a PPOR and stay for say another three years. Does this mean that .......
1. the property is subject to CGT for the full term of ownership.
2. the property is subject to partial CGT for the time that it was an investment.(if so,that would require a valuation at the point of it becoming a PPOR.)
3. the property is not subject to CGT any longer.
I am confused on this issue.
Thanks for your assistance.
Simon

 

[Mry]

Example -

SJ has an IP that he rented out for 5 years, and then moved into for 3 years as a PPOR. He bought it for $200,000 and sells it for $300,000. SJ's capital gain is $100,000 x 5 / 8 which is $62,500*.

As Dale said, a valuation is useless for IP to PPOR moves.

* Yes I have not included discounting, stamp duty, adding special building write off, etc for the purposes of this example.

 

[simonjulie]

Thanks that's what we wanted to know
cheers
Simon

 

[bianca]

Just noticed this post and thought this was along the same lines. I just copied and reposted--hope that that is ok.

We have just finished building our new house-7 years in the making-definitely not an overnight dream.Mind you, we fully own it, and onlyhave a $250K loan for the land content left over.
We have been able to claim our loan interest as a tax deduction, as it was originally an investment.We also own our PPR, where we have lived for the past 8 years.
We are now moving into the 7 year dream, and are going to Sell the PPR to our hybridtrust( when and if it ever gets set up)we will get a valuation at the highest market price,to ensure CGT is not going to be too huge an issue if we ever want to sell it further down the track, take out a loan for this amount-probably $600-$650K,pay out the 7 year dream's loan of $250K, then convert the 7 year dream to our PPR and rent out the original PPR. The balance of the money will pay back some of the new loan, so in effect we have just transferred our taxable interest from one to an other, kept the PPR and
also virtually own the 7 year dream. The original PPR will be rented at $550-$600 per week
Question 1 is--will this work?
Question 2 is-- the 7 year dream is sitting on a 3500 sq m block of land which we have fought with council with, to be split in 2. It is finally getting sealed, after a 4 year battle. The land is valued at...yes..cough cough...
$1.5m- we bought it in 1998 for $180k.
It is due to be finalised in a month or so. But, during the ïgnorant"time when we just went ahead and applied for the subdivision, we just said"split the damn thing in half: and didn't think any further. What is going to happen to the block of land? If it is just in our name, as I guess it will be, will it be classed as an investment, and therefore incur CGT if we ever sell it? How are they going to apportion a value to it--at the time of the sealing of the plans?Is it too late to now place this in our trust to be? Should we make sure the whole "loan swapping"has occurred prior to this taking place or wont it matter?
Thanks in advance for the input guys.I want to get this right.