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From: Mike .


Reducing Capital Gain Liability
From: Michael
Date: 03 Dec 2000
Time: 23:54:26

Peoples,

Here's a scenario, I've decided to sell an IP which I've had for 3yrs. I rent and don't have a "principal place of residence". Can I nominate my IP as my PPR just before I sell it and reduce my capital gain liability?

And to push this further, say I owned a 2nd IP, could I do the same to this after the 1st IP is sold?

Regards Michael

 

[WebBoard]

Peter Soll

Reply: 1
From: Mike .


Re: Reducing Capital Gain Liability
From: Peter Soll
Date: 04 Dec 2000
Time: 19:59:53

You should of purchased an investment property under an instalment sales contract. You then wouldn't of paid capital gains. You wouldn't of needed to worry about selling the property. It would of been positively geared anyway.

 

[WebBoard]

Debbie

Reply: 1.1
From: Mike .


Re: Reducing Capital Gain Liability
From: Debbie
Date: 05 Dec 2000
Time: 05:48:08

Please could you explain how an instalment sale contract works.

Thanks, Debbie

 

[WebBoard]

Peter Soll

Reply: 1.1.1
From: Mike .


Re: Reducing Capital Gain Liability
From:
Remote Name: 203.147.165.153
Date: 05 Dec 2000
Time: 15:06:22

It takes more than just a few words to explain the concept. You can contact me on [email protected].

 

[WebBoard]

NIF

Reply: 2
From: Mike .


Re: Reducing Capital Gain Liability
From: NIF
Date: 04 Dec 2000
Time: 12:41:44

What you should have done when you first bought the property was move in to it for a short period, establishing it as your PPR, then moved out & rented it. You can then neg gear it for 6 years without creating a cap gain liability on sale.

Note you can only do this for 1 property at a time as you're only allowed one PPR.

 

[WebBoard]

DuncanM

Reply: 2.1
From: Mike .


Re: Reducing Capital Gain Liability
From: DuncanM
Date: 04 Dec 2000
Time: 06:09:32

The short answer is No.

The long answer is. If you'd had the property for 5 yrs (as an example), and you had rented it out for the first 4 years and then lived in it for the last 1 year then you would be entitled to be exempt from 1/5 of the Capital Gains Tax.

Just out of interest, what's the motivation for the sale?

Regards, Duncan.

 

[WebBoard]

Michael

Reply: 2.1.1
From: Mike .


Re: Reducing Capital Gain Liability
From: Michael
Date: 04 Dec 2000
Time: 09:26:13

Duncan,

Changing my portfolio from neg geared properties, to pos geared properties.

To make this property pos geared would require too much cash, thus the cash-on-cash would be too low.

At the same time, this would reduce my expenses (and hence my CASHFLOW game target, for passive income).

Michael

 

[WebBoard]

Sim

Reply: 2.1.1.1
From: Mike .


Re: Reducing Capital Gain Liability
From: Sim'
Date: 04 Dec 2000
Time: 15:35:44

Goodonya Michael for making a "positive" step!!

This is a good point though... can anyone suggest any other methods for Michael to make his IPs cash flow positive without selling one of them?

I'm assuming Michael is attempting to lower his debt level on the other IPs enough to make the cashflow positive.

 

[WebBoard]

Anon

Reply: 2.1.1.1.1
From: Mike .


Re: Reducing Capital Gain Liability
From:
Date: 10 Dec 2000
Time: 17:24:30

Refinance the property, and pay out your original loan (if it is principal and interest). Then the difference between your new loan and the price of your IP is free income. Set aside part of that money for rental. Just food for thought, This created an extra $125,000 for me.

 

[WebBoard]

Robert

Reply: 2.1.1.1.1.1
From: Mike .


Re: Reducing Capital Gain Liability
From: Robert
Date: 04 Dec 2000
Time: 15:58:18

G'day Micheal

How about putting a Lease Option on the IP? You place a higher rent value on the property, of which a portion of it comes off the deposit for the place. You make the Option for a 5 year period with yearly increases claused into the contract. This way you get to keep the property for 5 years and it is positively geared and you've got someone to buy it at the end without any RE Agent commission fees.

There are other ways of doing it but this is an easy way.

Cheers Robert

 

[WebBoard]

Michael

Reply: 2.1.1.1.1.1.1
From: Mike .


Re: Reducing Capital Gain Liability
From: Michael
Date: 05 Dec 2000
Time: 16:51:34

Yes,

I could use either a lease/option or an installment sales contract (by the way the properties are in NSW).

But a concern I have is the COC return. I bought the properties for $180k and $170k each and intend to sell them for $210k+ each. So if I were to "wrap" them and draw down as much as possible there still exists the problem I'd had a lot of cash tied up which could be better utilised elsewhere (or so I believe).

Michael