couple of tax questions

Hello everyone,

Can anyone give me their opinion on this? Maybe Dale or Richard?

1. Regarding the law that allows you to move out of your PPOR for up to 6 years, and in that time rent it out as an IP, but then still be able to sell it CGT free (for up to 6 years).......I always thought that you could move out of your PPOR for any reason that you wanted ie, you didn't have to give a reason to the tax office. But someone just told me that to legitimately use this law, you have to move out of your PPOR for a good reason. eg, you get sent overseas for work. Therefore, say I just move out of my PPOR just to move down the road and rent at a cheaper rate than I can rent out my property for, I can't qualify under this law. I hope this makes sense. My question is, is this correct?

2. Let's say my employer has set me up with a home office. If I was to rent, would I be entitled to claim part of my rent as a tax deduction? (I'm quite sure I have a "home office" and cannot use my home to qualify for a "place of business"). I'm asking because one accountant suggested I could claim part of the rent, but then another told me that only people using their home as a "place of business" could do so, not people with a "home office".

Thanks in advance,

John

2.:confused:
 
Hi John,

To answer your questions...

1. No special reason required to trigger 6 year exemption. Moving down the road is good enough.

2. I answered a similar post recently on the old forum, here's a copy of my post -

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Topic: tax question (4 of 4), Read 346 times
Conf: Property Investor Forum
From: Richard Hunt mortgagewerx@aol.com
Date: Monday, August 26, 2002 03:38 AM

Hi Andrew,

The extent to which you will be able to claim a tax deduction on various home office expenses will depend on whether your home office is merely a place where you bring home work for personal convenience ("akin to a home study"), or whether it is in fact a "place of business", which in the context of an employee may be taken to include an area or room where you conduct a substantial portion of your employment duties.

If a "home study", you cannot claim expenses such as the interest on your mortgage, rates or building insurance, although you may be able to claim among other things, heating/cooling/lighting expenses.

If a "place of business" then in addition to the expenses that may be claimed for a home study, you may also claim a portion of the interest on your mortgage, rates and insurance. Generally, the portion will be referable to floor area of the room from which the employment duties are conducted.

From your comments it appears that your employer may be pursuing a decentralised employment place policy in which case there is a strong argument to suggest that your office will be a "place of business".

Where the office is a "place of business" your PPOR CGT exemption will be diluted. Expect to derive a capital gain calculated by reference to the relative floor area of the office and the period over which the office was used as a place of business.

Just because you may "choose" not to claim a tax deduction for mortgage interest etc.where your office is a "place of business", this will not necessarily protect you from deriving a capital gain on your PPOR.

There is a lot of grey area between the black and white on these sorts of issues, I suggest you have a chat to your accountant. Better still, see if you can get your employer to pay for some expert advice.

Hope this helps!
 
Originally posted by Richard Hunt

1. No special reason required to trigger 6 year exemption. Moving down the road is good enough.

May I pose a scenario to clarify this?

You buy and live in a place for a year or so. PPOR. Then you move to another place you've purchased, intending it to be your PPOR. You then rent out the original place for, say, 5 years, then sell it. You invoke the above exemption and then aren't required to pay CGT.

What is the status of the 2nd place, where you have been living for 5 years, during this period? What if you were to immediately sell the 2nd place also - would that one be CGT exempt?

Or if you were to continue living in it for another year, and then sell the 2nd place, is that CGT exempt (invoking the same 6 year exemption)?

Hope this makes sense...
 
Hi

Originally posted by Apocalypse
May I pose a scenario to clarify this?

You buy and live in a place for a year or so. PPOR. Then you move to another place you've purchased, intending it to be your PPOR. You then rent out the original place for, say, 5 years, then sell it. You invoke the above exemption and then aren't required to pay CGT.

What is the status of the 2nd place, where you have been living for 5 years, during this period? What if you were to immediately sell the 2nd place also - would that one be CGT exempt?

Or if you were to continue living in it for another year, and then sell the 2nd place, is that CGT exempt (invoking the same 6 year exemption)?

Hope this makes sense...

You have the choice which property you treat as your PPOR when a property is sold. So, based on the above no decsiin is required until the 2nd place is sold. Then, to reduce your tax you would need to claim the 2nd property as your PPOR. In doing so, if you sold the first one you have a CGT problem based on the difference between the market value of the house when you moved out and the sale price less any costs of selling.

Does this help?

Dale
 
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