Move in for 3 months and save on CGT

[chicken madras]

Hi first time,

So after a couple of investments with my x wife. We agreed to sell so we could be financially independent there fore now looking to start again and invest interstate I think? These offer the better growth and yield combinations, however having a property close has an added advantage.

I am considering investing in Wollongong which is home and is a crapish market when compared to Brisbane and Adelaide.

The reason for my madness is that if I actually move in for 3 months change the phone over change mail over and also my electoral role details, then rent out as normal after 3 months.I then dodge all CGT at time of sale, which may be a ten year cycle.

Can anybody comment on this, as I don,t trust the little birdie that informed me this is the way forward. Is it possible to dodge the tax in this way?

Any stories

 

[Perth Investor]

If you buy a house to live in, and decide to rent it out due to "circumstances", there is a six year rule, that says you can continue to nominate it as your principal place for that six years, and not pay CGT on the sale.

If it goes beyond the 6 years it will start to apportion, i.e. for 10 years, it will be 6 years CGT free, and 4 years of CGT.

However, you can only have one principal place of residence, so after renting this one out, if you decide to buy another house to live in, property A will be an investment, and it doesn't matter what you did for the first 3 months...

 

[wylie]

Add to that..... apparently if you move back in and live there again before the six years is up, and then move out again the six year rule starts again.

 

[Perth Investor]

Add to that..... apparently if you move back in and live there again before the six years is up, and then move out again the six year rule starts again.

Well look at that, I didn't know that, and I thought I was the font of all knowledge...

 

[wylie]

I have only learned that from this forum, so please don't take my word for it, but check it out properly before embarking on that journey .

 

[Perth Investor]

I'm pretty happy with my house, so I don't think it will worry me, but I'll keep it in mind for other folks.

Might as well keep the rumour flowing now it has started!

 

[bene313]

It's correct that you may move back in to refresh the 6 year rule.

The practicality of utilising the 6 year rule is that you must be a renter for that 6 year period.

 

[The Donners]

The 6 year rule for main residence is correct.

However, there is no timeframe as to how long you need to live in the house initially for it to be deemed main residence. If you give the appearance that the house is used as main residence, i.e. your furniture, clothes etc. are in the house, then the house may be deemed as your main residence.

 

[evisional]

If I rent PPOP out and rent somewhere to live, then move in within 6 years, then subdivide the land, sell the existing house, do I have to pay GCT for selling this existing house?

after that, I use the money from selling the front house to build a rear unit on the subdivided land and nominated it as PPOP. I will live in the rear unit for few months or years, then sell the rear unit, do I have to pay CGT on this rear unit sale?

TA

 

[marg4000]

Interesting slant on the "6 year rule" (by Chartered accountant Chris Watts):

"Because this rule was designed for people who need to move for work purposes, the tax office will not allow the exemption if its view is that the situation was arranged for tax avoidance."

http://www.smh.com.au/money/investing/smart-ways-to-buy-and-finance-property-20100907-14yib.html

scroll down to the heading
"Getting into the market - rent out and save"

Never heard of this before.

???????

Marg

 

[Jebb]

From memory, correct me if I'm wrong:

If it was rented out before you live in it, then you would have to apportion that time and pay CGT on it.

If you lived in it first then rented it out, you get 6yrs CGT exemption. Then you can move back after 5.5 years and reset the CGT exemption to another 6yrs.

The point being if it was rented out of lived in immediately when you bought it.

This is my understanding of it.

http://www.somersoft.com/forums/showthread.php?t=65128

 

[evisional]

If I rent PPOP out and rent somewhere to live, then move in within 6 years, then subdivide the land, sell the existing house, do I have to pay GCT for selling this existing house?

after that, I use the money from selling the front house to build a rear unit on the subdivided land and nominated it as PPOP. I will live in the rear unit for few months or years, then sell the rear unit, do I have to pay CGT on this rear unit sale?

TA

ok. I found the answer here, can someone verify if this is true:

http://www.brisbanetimes.com.au/mon...erty-avoid-these-tax-traps-20100707-zzuy.html


Q. I have a house with a big backyard and managed to get a permit for a two-storey townhouse two years ago. Construction has finished and I moved into my new unit last month. The construction loan was added to my old home loan. From a tax point of view what is my best option?



A. To answer your question it is first important to establish what you are trying to achieve. If you want to make your life as financially simple as possible, and reduce your non-investment debt to a minimum, it makes sense to subdivide the property now and sell off your old home.
Advertisement: Story continues below

By doing this now the profit you make on the sale of your old home will be tax-free. The proceeds from this sale can then be used to pay off the debt on that home and also the construction debt on the new unit. As this unit is your new principle place of residence any profit you make when it is sold will also be tax-free.

 

[The Donners]

From memory, correct me if I'm wrong:

If it was rented out before you live in it, then you would have to apportion that time and pay CGT on it.

If you lived in it first then rented it out, you get 6yrs CGT exemption. Then you can move back after 5.5 years and reset the CGT exemption to another 6yrs.

The point being if it was rented out of lived in immediately when you bought it.

This is my understanding of it.

http://www.somersoft.com/forums/showthread.php?t=65128

Correct.