CGT where PPOR first rented then you move in

Discussion in 'Accounting and Tax' started by DanielK, 28th Jan, 2015.

  1. DanielK

    DanielK Member

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    Hi
    Wondering if anyone has experienced this or knows how to tackle it.
    I bought a house in Aug 2005 already rented and moved in 12 months later after I gave the tenants notice. I then lived there from Aug 2006 until I sold it in April 2013.
    When I moved in within 12 months of purchasing it, I had the property valued by a registered valuer in Aug 2006. It was valued at the same price as to what I bought it for.
    The ATO has been in touch saying I owe CGT and is using s118-192 apportioning the days is was rented divided over total ownership days. I have tried using the valuation and saying my gain is zero (valuation = purchase price) but the ATO says I cant use the valuation, only the apportionment.
    If the situation was reversed and it was my PPOR from day 1 and i rented it later, I could use the valuation. But the valuation doesnt work the other way around (that is, rented then PPOR).
    I find this ridiculous that instead of using a mathematical linear apportionment, the ATO does not consider the use of the valuation when I property is rented then is used as a PPOR but only when it was originally your PPOR then is rented out.
    Anyone been in this situation or know of other sections of the ITAA/cases where I can use the valuation?
    Cheers
    Daniel
     
  2. Terry_w

    Terry_w Member

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    Ato is correct and you are wrong on this. Valuation is not relevant. Seek advice and make sure you have claimed all relevant costs to reduce cgt
     
  3. dan c

    dan c Member

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    The ATO is correct. Valuation is only required where it goes from PPOR to IP. That is the law.

    Your theory about valuation being purchase price is also wrong. Theoretically, if valuation was allowed, it would be the valuation at the time it became your PPOR, not the purchase price.

    Frankly, it doesn't matter if you find it ridiculous or not. The tax law says you owe CGT.
     
  4. Rob G.

    Rob G. Member

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    The apportioning by time method from purchase date under s.118-185 is the default.

    The valuation under s.118-192 is a concession for people who never anticipated ever renting out their main residence and so have not kept adequate records for their cost base.

    Otherwise they would be disadvantaged and in breach of their statutory duty to keep adequate records.
     
  5. baby blue eyes

    baby blue eyes Vicki

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    You can reduce the Cgt by costs incurred holding renovating and maintaining the property whilst it was your PPOR. This makes a dent in the cgt if you held it for that period of time. Start digging up the receipts and interest etc. Best to seek tax advice.
     
  6. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    I wish I had $10 from every person who had same thought.

    The ONLY time a valuation is relevant to CGT as far as I can quickly determine:
    1. Change to/from resident / non-resident; and
    2. When a FORMER PPOR first earns rental income (not the other way around)
     
  7. fernfurn

    fernfurn Member

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    Oh Oh! We bought a property as our new ppr that was already rented out. We couldnt sell our existing ppr for a year but as soon as sold gave notice to the tenants and moved in. We are half way through a massive reno and assumed if we sell it would all be cgt free. Is this not so? It would definitely not have increased in valuation in that year, but after our reno would expect a huge reval.
     
  8. dan c

    dan c Member

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    It may not be as bad as you think. For example if you hold the property for 10 years total, you would be liable for CGT of 1/10th of the capital gain. (Rented for one year, total ownership 10 years). Further, you would get a 50% reduction for holding the asset for over 12 months.

    Reno costs may also form part of the cost base.
     
  9. marg4000

    marg4000 Member

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    You will be up for some CGT.

    From now on you will have to keep good records and receipts for all expenditure, and will have a massive accounting exercise when you eventually sell.
    Marg.
     
  10. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    There may be a safeguard in such a case. The MR exemption contains an ?s soon as practicable rule. The question is if this can apply in your case as its not always the case. The issue of the former PPOR may even meet the overlap rule when one is sold or the MRE may only apply to one property. Seek tax advice - In any event the proportion would be small.