ip to become ppor to avoid tax

[scott]

Is this scenerio possible and if so is it legal?

You wish to sell IP. say bought for 250k and 10 years ago and now worth 500k.

You have made a initial capital gain of 250k less 50% (discount for holding over 12 months) thus capital gain of 125k. Assuming you are on top marginal tax rate you would end up paying tax on 125k which is 72.5k ouch!

To avoid this tax could you move into the IP for say 12 months call it your PPOR and pay no capital gain tax when you do sell.

(Origional PPOR keeps capital gain tax exemption for 6 years yes)

Scott

 

[Ajax]

Scott,

you would only get the PPOR exemption from CGT if you had first lived in the property then let it out. In your case you should be liable for cgt on the increase in value from the date you purchased until the date the property became your PPOR. You may wish to get a valuation at the date you move in-hopefully a low valuation if the tax office will wear it.

There is no ability to retrospectively PPOR an IP.


Ajax

 

[scott]

Thanks Ajax,

I thought it too easy.

Scott

 

[alexlee]

72.5k tax on 125k gains is 58%? Does that make sense?
Alex

 

[geoffw]

You have made a initial capital gain of 250k less 50% (discount for holding over 12 months) thus capital gain of 125k. Assuming you are on top marginal tax rate you would end up paying tax on 125k which is 72.5k ouch!

I assume that's $62.5K.

So your glass is 3/4 empty.

You're still making $187.5K. The tax you pay is just a cost of doing business. Take the profit, and thank the government for giving you the 50% concession.

In order to get that little back, you must already be earning a salary over $95K pa anyway. Many salary earners would not earn anywhere near that much, and so would be able to pocket more- but even $187.5K is a substantial amount for most people.

 

[Ajax]

Hi Scott,

if it was my property (depending on where it was) I wouldn't sell.

I'd borrow on a low doc loan (at 80% lvr) or a no doc up to 70% lvr.

That way you have access to up tp $150k of the capital gain tax free (at 80% lend)...($500k x 0.8)-$250k=$150K and have retained the additional 20% equity in the property ($100k). If you don't need the funds immediately you could access them by a line of credit and only pay interest when funds are withdrawn.

This instead of receiving $187.5k of the capital gain after tax of $62.5k. You also would be liable for agent's commission of 1-3% on sale of $500k and other selling expenses).

Ajax

 

[ibeginner]

Hi, All

Scott: I never heard "
(Origional PPOR keeps capital gain tax exemption for 6 years yes)
" --- No the CGT guidelines at least?

Ajax : "
you would only get the PPOR exemption from CGT if you had first lived in the property then let it out. In your case you should be liable for cgt on the increase in value from the date you purchased until the date the property became your PPOR. You may wish to get a valuation at the date you move in-hopefully a low valuation if the tax office will wear it.

There is no ability to retrospectively PPOR an IP. "

I have never heard this either. The TAX said if it becomes your IP, when you sell you still need pay CGT on it propotionly.

Can you clarify?

Thanks