Couple of random questions.

[Compleks]

Morning all.
I just had a few questions which have come to mind recently.

I'm looking to buy an apartment and manufacture some equity with a few renos. But I just had a few queries.

If I buy an apartment, have it renovated and then rent it out, all the work/costs become tax deductible, right?

What happens if I live in the property (for at least 6 months) while I'm renovating, then turn it into an IP. I assume the renovation costs will not be tax deductible?
But I could still use the renovations on a depreciation schedule, correct?

I don't have much knowledge on CGT and just how much it can cost. But would the second scenario be better off in the long run if I can avoid CGT?

If the apartment were my PPOR for 6 months before renting it out I can avoid paying CGT for six years. Correct me if I'm wrong.
When those six years are up, can I move back into the apartment for another 6 months and repeat the process?
Can I claim this tax exemption on more than one property if I were to repeat the process on a few properties?


Realistically, what is CGT likely to end up costing me?
Is it only paid when a property is sold?



Sorry for all the questions. Any answers at all are appreciated.

 

[D.T.]

Need accountant advice on the reno part - initial reno could be treated as part of the cost basr for cgt purposes rather than deductible. At best, depending on what you do, it may be depreciable.

As for the 6 month thing - depends om what your plans are. Are you going to rent or move in with someone in 6 mmons time? In any case thoroughly document when you move in and when you move out. This is in case the ATO challenges it like they did mine. Look up my thread on this to see the pain im still going through 6 years past selling.

 

[Scott No Mates]

Depending upon the extent of work you may need to depreciate the items so a depreciation schedule will be required.

Provided you don't have another ppor ie renting elsewhere then the 6 year rules apply.

 

[tobe]

Can I claim this tax exemption on more than one property if I were to repeat the process on a few properties?

NO, you can only have one CTG exempt foot in any one property at a time

Realistically, what is CGT likely to end up costing me?
Is it only paid when a property is sold?


Correct, 50% of the nett gain is added to your taxable income in the year of the sale, so properly structured it could cost you very little.

 

[Peter_Tersteeg]

When I did this myself (many years ago), we had a depreciation schedule done, which took into account the improvements we'd made whilst living there.

 

[Compleks]

Thanks as usual for the quick replies.

"so properly structured it could cost you very little."

I don't really understand this, but I think my accountant is pretty switched on, and he is also has investment properties of his own.

Having 50% of net gain taxed is potentially a significant amount of money though.
I'm thinking of using this next property as a little reno project. If I live there for 6 months and keep it free from CGT I could always use that to my advantage down the line. For example, if required I could sell it to reduce some debt on other investment properties.
Is that a reasonable strategy/approach?

Thanks.

 

[Peter_Tersteeg]

50% of the nett gain is added to your taxable income in the year of the sale, so properly structured it could cost you very little.

What tobe is saying here, is that you can potentially manage your income and tax deductions in the same year that you sell the property in such a way that you end up paying only a small amount of capital gains tax.

As an example:

Since it's added to your income, the capital gains could put your income up into the next tax bracket or further, thus you could end up paying quite a bit of tax for that year.

At the same time, you could take some of those profits from that year, and pre-pay your interest for the following year on another property, thus bringing some of your tax deductions forward. The result may be that you pay a little more tax in each of the two years (the current tax year and the next year when you've pre-paid the interest), but the net result may be that you pay less tax overall than you would if you just paid what was applicable to each year.

If you're going to sell a property on which you'll pay CGT, or have any other expectation of earning an unusually large profit, it's a good idea to discuss your plans with your accountant early so you can plan and manage the event to work as favourably as possible.

 

[dmb1978]

Something I just found out recently was that the capital gains is from when you start renting out the property. So I suggest if you do renovate or improve the property have it valued when you move out. This way the capital gain is from the valued price not the original purchase price - can save you lots of money.

I wish I knew this for our first property as we lived in for 4 years before renting for six months and then selling. Although he cpt was proportionate it would have been much less if we had it valued at the time of renting. Did etax so this time will be using accountant.
I was told this by my lawyer so havent looked it up myself.

 

[Blacky]

Something I just found out recently was that the capital gains is from when you start renting out the property. So I suggest if you do renovate or improve the property have it valued when you move out. This way the capital gain is from the valued price not the original purchase price - can save you lots of money.

I wish I knew this for our first property as we lived in for 4 years before renting for six months and then selling. Although he cpt was proportionate it would have been much less if we had it valued at the time of renting. Did etax so this time will be using accountant.
I was told this by my lawyer so havent looked it up myself.

Cgt in this case shouldn't be payable at all. You have up to 7 years after living in a property to continue to consider it your ppor. This of coarse can affect other property tax implications.
I would discuss this with your accountant and see if you can lodge a correction.

There maybe other implications with your personal situation which means nothing can be done. Or is not worth doing. But it's worth asking the question.

Blacky

 

[quoll]

If I buy an apartment, have it renovated and then rent it out, all the work/costs become tax deductible, right?

My understanding is you need to:
Buy, Rent, Reno
To be able to claim the reno costs, if you property hasn't produced any income prior to the reno then the reno is a capital work.

My 2c
Graeme

 

[dmb1978]

Thanks Blacky, that's what a few people are saying that we shouldn't have had to pay at all but we had another PPOR at the time we rented so we were told to pick one or the other to use for claiming capital gains and it was all done on e-tax. So next time round we will be consulting an accountant.

 

[Compleks]

Cheers all. Plenty of good advice to process.

Love this place

 

[strongy1986]

Cheers all. Plenty of good advice to process.

Love this place

Yes plenty of good advice but also plenty of incorrect advice. Particularly relating to accounting questions.
Rennos are capital works
CGT will calculated on selling price (less sales costs) - (cost price + purchasing exp + capital works not already claimed as deduction)

 

[Tim86]

My understanding is you need to:
Buy, Rent, Reno
To be able to claim the reno costs, if you property hasn't produced any income prior to the reno then the reno is a capital work.

My 2c
Graeme

Then you have the tax department asking you questions about why you're trying to claim renovations as property repairs for your tenants in order to avoid tax.