CGT PPOR 6 year rule applicable here?

[investor2009]

Hiya'!

Just wanting to know what the scenario would be here.

You live in a PPOR for 1 year, buy another PPOR and move into that for just under 6 years. Sell the old PPOR, no CGT?
Thank you.

 

[Melbournian]

You going to need to sell the 1st PPOR first before you establish PPOR at the 2nd place.

 

[Ski-bum]

You going to need to sell the 1st PPOR first before you establish PPOR at the 2nd place.

I would disagree.

investor2009, at any given period of time, you can only have one nominated main residence. So if you sell your first PPOR within the 6 years of moving out, you can still get CGT exemption if you cite it as your main residence during that period. However you will not be able to claim those 6 years as your main residence for your second PPOR - thus will be up for CGT during that period of time. When you come to sell your second PPOR, the amount of CGT payable will be proportional to the amount of time it isn't your main residence.

The good thing is that you don't need to nominate which property is your main residence until you sell.

This might help

http://www.ato.gov.au/corporate/content.asp?doc=/content/86191.htm

 

[Melbournian]

SPOT on! - i was trying to say exactly like you said - just couldn't get it out

This happenned to me once when i had a tenant in there for 6 months on settlement and i held it for another 2 years and i have to pro-rata it.

 

[asdf]

For those accountants out there: when you move into that 2nd PPOR and make the first PPOR an IP, do you take market val of the first PPOR to determine cost base or original purchase price then look to apportion period in which first PPOR was rented when finally working out CGT on any disposal?

Hoping for the former. Who keeps records of all renos, especially when you pay cash without receipts when you live in it and don't intend it to be an IP. Bugger!

 

[RPI]

I am not an accountant but am just finishing a masters subject in Capital Gains Tax Law. For interesting reading you can download a PDF of it online. s 118-185 of the Income Tax Act 1997 (Cth) deals with partial exemptions. It has examples and formulas to calculate your apportionment. Chapter 3 deals with CGT, Div 110 outlines the Cost base and reduced Cost base rules. There are provisions to use Market Value where some or all of your expenditure cannot be valued.

The bit you are looking for is 118-192 Special rule for first use to produce income (2) you are taken to have acquire the dwelling or your ownership interest at the income time for its market value at that time. Easy plain English hey (believe it or not the ITAA was rewritten to make it more readable)

So you are in luck, Market value no need for receipts.

 

[Terryw]

Or s 118-145 for the main residence absence rule.

I think the first PPOR could be CGT free, but the second one would lose the exemption for this cross over period.

 

[asdf]

Thanks guys, thought I read it somewhere many moons ago. Now guessing I have to pay $400 for valuer to come in. Was going to get in a few "friendly" agents. Can't win em all...

 

[Nemo30]

Say you move for work and rent out your PPOR while you are away for 7 years then move back. When you eventually sell 20 years later, are you charged GCT on the 7 years?

 

[RPI]

No you can continue to treat it as your main residence as long as it is you don't claim any others as your main residence. This also assumes that you are not claiming any deductions etc for the rent during the 7 years. If you treated the property as an investment property then 6 yrs is the limit. If however you are renting it out at market rates to cover costs of renting the other property where you went for work, then it can be indefinite. section 118-145 is the part of the act you are after.

 

[Rob G.]

Say you move for work and rent out your PPOR while you are away for 7 years then move back. When you eventually sell 20 years later, are you charged GCT on the 7 years?

Basically ... yes.

e.g. own property 40 years

PPOR 13 years from when acquired
IP 7 years while away working and not claiming another exempt PPOR
Return to PPOR for 20 years

You are deemed to have acquired your property at the time you first rent it out. The cost base is the market value on this date.

Therefore ownership period = 27 years (not 40)

You cannot use the 6 year absence concession because it has expired (ATO ID 2003/1113).


CGT = (7/27) x capital gain x discount

Cheers,

Rob

PS I think the ATO is wrong and the CGT should only apply to the one year, that was how the previous legislation was written. However the current provision is silent on this issue and the ATO has taken the hard line and nobody has taken the ATO to court yet !

 

[tvadera]

Hi All,

I have gone through ATO's Guide to Capital Gains tax couple of times but still not able to understand , hope any SS member might be able to help:

My situation:
Purchase contract settled on: 17 Sep 2009 (immediately move into the property and its my PPOR)

I would like to convert my PPOR into IP by end of 30 July 2011 and do i need take current market valuation of the property before letting it out?

If I move into a different rental place (say nearby suburb or same suburb where my PPOR is), then rent my PPOR till 30 July 2016 and move in back to PPOR on 1 Aug 2016 , then will I get full CGT exemption if I decide to sell it ? (i.e. 6 years CGT exemption rule will apply or not?)

Regards,
TV

 

[Terryw]

Its best to go to the source - the legislation.

PPOR becoming a rental = s 118.192 ITAA 1997
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.192.html

6 year rule = s118.145
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html

 

[White Rabbit]

I buy apartment one and move interstate for work after 7 years. I immediately buy apartment two at my new location, and rent apartment one for three years before selling it. In the meantime the property value of apartment one has surged for 2.5 years before suffering a marked decline for six months due to a real estate price drop. Unfortunately I sell 6 months into this decline. My question is: would I be allowed to shift my PPOR at this 2.5 year point? Does the tax law have that flexibility? Then potentially I would have suffered a capital loss during the six month period before selling. Does the law work in this way at all?