Help on CGT strategies

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From: David Hepburn


We are currently building a dual occupancy (Duplex) in partnership with another couple. We plan to keep our half but have a question with the CGT. When it's completed, we estimate there could be as much as $100k gain after costs.

We plan to sell it but need help on the timing of selling it. If we live in it from day 1 for more than 12 months then its our primary place of residence and therefore no CGT applicable. What if however, we plan to travel for 12 months as soon as its finished, rent it out during those 12 months, then live in it after that for 12 months then sell it. What happens to the $100k gain when we sell it?

Thanks in advance.
 
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Reply: 1
From: Mark Laszczuk


David,
I'm not an accountant, so don't take this as gospel. Um, I believe that you will be required to pay CGT on the percentage of the gain that the duplex was rented for, unless you can get an exemption (you need to talk to an accountant about this). So, assuming you rent it for half the time you own it (12 months), you will pay tax on 50% of half the gain (if it is in your name). Ie: CG is $100K. You would pay CGT on 25K, which is half of half the gain. You pay CGT on only half the gain if the residence is in your name, in other words. Hope this wasn't too confusing and again, as I'm not an accountant, please do not construe this as advice, as I may not be correct.

Mark
'no hat, some cattle'
 
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Reply: 1.1
From: The Wife


and again, not sure about this, check with an accountant, but, your principal place of residence is so for up to 7 years if you move out, regardless of how long you lived there originally, but you can only have one principal place of residence, and you can rent it out.
Am I correct Dale?

TW
~Life is a daring adventure, or nothing at all~
 
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Reply: 1.1.1
From: Sim' Hampel


I believe it is actually 6 years. Check with your accountant.

 
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Reply: 1.1.2
From: Terry Avery


My understanding is the ATO treats it in two ways:

Firstly if you live in the house to begin with then you can rent up to six
years at a time and retain the PPR exemption.

Secondly, if you rent the house and then live in it then the above does not
apply. You have to apply a formula of the number of days rented divided by
the total number of days owned to get the proportion of rented out. You then
multiply the capital gain by this portion to get the taxable amount. You
then pay tax on 50% of this at your marginal tax rate.

For example you owned a house for two years and rented for the first year.
Capital gain was $40,000 then your taxable amount would be 50% or $20,000.
You have a 50% CGT exemption for personal investors so $10,000 is taxed at
your marginal rate, say 30%, then your tax liability is $3,000.

Had you lived in the house for a year and then rented there would be no CGT
to pay! That's the way the rules work as far as I understand them but you
need to do your own research and seek advice from your tax adviser.

Cheers

Terry
 
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Reply: 1.1.2.1
From: Mark Laszczuk


Wow! Now there's something I'd never heard of before...the forum posters do it again! Thanks guys!

Mark
'no hat, some cattle'
 
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Reply: 1.1.2.1.1
From: Dale Gatherum-Goss


HI

We could go a couple of different strategies with this one as identified already.

Importantly though, if you have no other PPOR then you can merely "elect" for this to be your PPOR during the period of ownership and therefore not pay a cent in CGT. I'd go this way as it is simple.

I hope that this helps

Dale
 
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Reply: 1.1.1.1
From: Dale Gatherum-Goss


Hi TW!

As already suggested, the time frame is 6 years. And why that length of time, you might ask?

Because that is how long the politicians and their friends are posted overseas in a diplomatic post.

The rules were 3 years, when the diplomatic post was 3 years. As soon as the o/s posting went to six, so did the CGT rules.

Hard to imagine the pollies looking after themselves, isn't it?

Have fun

Dale
 
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Reply: 1.1.2.1.1.1
From: Sergey Golovin


Good one about 6-year term Dale!

As they say - you do not want to know how they make sausages and low.

Serge.
 
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