Looking to sell our IP that was once the PPOR - CGT questions

[Witzl]

Hi all,

I need a bit of help to try and calculate our potential CGT liability on one of our IPs that was initially my wife's PPOR.

Around July 2005, my wife (shortly after we first met) bought her first property with the first home buyers grant. She rented it out for 11 months, after which time we then moved into it and lived there for about 9 months. Hence, at the end of 2006 she claimed the property as her PPOR (6 months after moving in).
Property is 100% in her name, nothing to do with me.

We moved out around March 2007 (iirc!!), and put a tennant into the townhouse, and ourselves rented a larger house in a better area.

In may 2009 we bought our current PPOR together, which we currently live in - but are considering converting it to an IP to buy a bigger family home, and selling the 1st IP (once the wife's ppor) to get the deposit for the new family home.


..... So how do i work out the estimated CGT liability on the wife's old PPOR, which is now an IP?
Is it exempt from CGT up until May 2009 when we bought our current PPOR together, since we rented in between?
How do you work out the capital gain from 2009 until now?

The IP in question is currently worth an estimated $420K.
Purchased for $296K in july 2005
Revalued at $315K sometime in 2008 i think (was refinanced to get out equity to pay back parents who loaned the deposit).
Current loan is $280K.


A quick side question - should we get a valuation done on our current PPOR when we convert it to an IP as well, so that we have hard numbers on the capital gain if we ever sell it?


Thanks in advance!

 

[coastymike]

Will you be electing to use the main residence absence provisions ?

What are the division 43 capital allowances claimed during the period of ownership.?

What are the division 40 depreciation allowances claimed during the period of ownership ?

 

[GaryT]

Your wife rented her property for the first 11 months of ownership so that component will always be subject to CGT on a proportionate basis (unless she dies whilst living in it). All expenses whilst it is your PPOR (interest, maintenance etc) can be added to the cost base and apportioned accordingly which is a nightmare for administration.

Once she moved in to the property, she can start to claim it as her PPOR as long as she does not have another PPOR.

She can utilise the 6 year rule to continue to claim this property as her PPOR after she moves out again as long as she does not have another PPOR.

When you purchased the new property and moved in, it MAY be nominated as your PPOR, but again you can only have one PPOR at a time.

You effectively nominate which property you want to be your PPOR when you sell the first one - actually in the tax return for the year in which one is sold.

You will need a valuation on the second PPOR when it starts to be an IP. Real estate valuation is suffice.

 

[menty]

I was led to believe you couldn't simply use a real estate/bank valuation for the calculation of CGT purposes, and it had to be done some other way.

 

[Aaron_C]

I was led to believe you couldn't simply use a real estate/bank valuation for the calculation of CGT purposes, and it had to be done some other way.

Has to be a certified valuer......and what type of valuers do banks use?

 

[GaryT]

There is nothing to require you to use a registered valuer. However I concede that it may be prudent to do so to avoid any arguments with the ATO in the future.

If you have evidence of that house’s sale you may choose to use that amount and only bother paying a valuer if you get audited and the ATO question the value. There is no rush if you are confident of the value as the data will always be there for the valuer to check. The only problem would be comparing that house with yours many years later. As the valuer’s report would list sales in the area and then compare your property with them this would include state of repair of course. Keep lots of photos. The actual sale data you have is more reliable than a real estate valuation. But usually those valuations list other properties that have sold as supporting evidence.

The valuation is then reduce it by the value of the plant and equipment at that time for depreciation purposes.

 

[Terry_w]

Hi all,

I need a bit of help to try and calculate our potential CGT liability on one of our IPs that was initially my wife's PPOR.

Around July 2005, my wife (shortly after we first met) bought her first property with the first home buyers grant. She rented it out for 11 months, after which time we then moved into it and lived there for about 9 months. Hence, at the end of 2006 she claimed the property as her PPOR (6 months after moving in).
Property is 100% in her name, nothing to do with me.

We moved out around March 2007 (iirc!!), and put a tennant into the townhouse, and ourselves rented a larger house in a better area.

In may 2009 we bought our current PPOR together, which we currently live in - but are considering converting it to an IP to buy a bigger family home, and selling the 1st IP (once the wife's ppor) to get the deposit for the new family home.


..... So how do i work out the estimated CGT liability on the wife's old PPOR, which is now an IP?
Is it exempt from CGT up until May 2009 when we bought our current PPOR together, since we rented in between?
How do you work out the capital gain from 2009 until now?

The IP in question is currently worth an estimated $420K.
Purchased for $296K in july 2005
Revalued at $315K sometime in 2008 i think (was refinanced to get out equity to pay back parents who loaned the deposit).
Current loan is $280K.


A quick side question - should we get a valuation done on our current PPOR when we convert it to an IP as well, so that we have hard numbers on the capital gain if we ever sell it?


Thanks in advance!

Have you got or did you have another property in your name which will be or was claimed as your msinnresidence?

 

[Witzl]

Have you got or did you have another property in your name which will be or was claimed as your msinnresidence?

Yes - we bought our current townhouse in May 2009.

Hence my understanding is that wifey needs to pay CGT on the capital gains from:

• July 2005 (purchase date) - June 2006 (moved in date)
• May 2009 (purchased new PPOR) - the day it is sold

In effect, this IP was her PPOR from June 2006 until May 2009.




So if the above is correct, how do we establish the values at these dates?
The only valuations we have are:

• July 2005 = purchase price was $296K
• August 2008 (approximately) = re-financed, valued at $315K
• very-near-future = estimated sale price of $420K

Do you just take the values from point to point and average the capital gains over the time period?

 

[Terry_w]

You would need a valuer to do a valuation as of the relevant date. First thing to do would be to seek some tax advise, work out the date and then get the valuations done.

 

[GaryT]

You don't need a valuation in the wife's property. CGT for that property is calculated on a proportional basis. This is because it was rented when initially purchased.

Valuations are only required if a property ceased being your PPR after never being income producing.