PPOR or IP - Inner city Sydney

[lacc]

Hi all,
I've been a lurker for awhile and have recently joined. Just after a bit of advice regarding a recent purchase of a unit in inner city Sydney.
Myself and my partner have just purchased a property for $900k. We are currently renting a unit in the same block and recently signed another year lease for $800 per week prior to purchasing.
However, I'm not sure whether we are better off:
(a) breaking our current lease (6 weeks rent), undertaking about $20k improvements and moving in as our PPOR
OR
(b) renting out the property for 12 mths until our lease expires and negatively gear the costs against our incomes (we earn about $100k p.a. each) then undertake renos and move in as PPOR.
The unit we have purchased is the same size, layout and aspect to the one we are renting. There are existing tenants on an expired lease who are interested in staying on. I've checked with the property manager and they seem like good tenants (rental history etc is good). We would be looking to increase the rent slightly to $800 so that we would effectively 'break even' with regard to our outgoing rent. Obviously there are other expenses (property mgt, strata, loan interest etc) but at least these are deductible.
I realise that there are CGT issues if we ever sold but, even if we did move, we would be unlikely to sell as it's in a good rental area - close to CBD, universities - and a unit with a bit of character - converted warehouse, industrial type feel.
Any observations or thoughts either way would be much appreciated

 

[Terry_w]

CGT will apply eventually so it is worthwhile trying to avoid it.

If you move in straight away it could be CGT free. Move in later and the property will always be subject to CGT.

It may be possible to move in, establish it as the main residence and then ove out again and rent. It ccould then remain CGT free depending on the circumstancces for up to 6 years. In th meantime you could negative gear, save tax and also pay lower rent - perhaps your rent would be abotu $5k per year then if you were in the place paying IO. You could also claim depreciation, strata etc so it may work out about $10 to $15k cheaper to rent per year (in the early years).

Could you swap apartments with the existing tenants for say 6 months?

 

[Paul@PFI]

The $20K of improvements etc to your proposed new home appear to be initial repairs and non-deductible in any case even if you choose to rent it out for a while. Choosing to rent then undertaking to try to mask these costs as deductible repairs is one of the obvious things that could pose a higher audit risk and risk of penalties.

Could you negotiate a switch of tenants ?? Your existing LL might appreciate no break in rents taking over your lease and the tenants appreciate the convenience staying within the building etc. Could this reduce your six weeks ?

 

[lacc]

Thanks for your replies.
We are planning on undertaking improvements for ourselves, not to claim as deductible expenses, and these would be undertaken just prior to us moving in - whether it is first up after settlement or after a year of renting it out.
Leasing our purchased apartment out to the existing tenants for another year would also provide us with more time to save for our improvements.
Though seeing about the existing tenants taking on our lease might be an option if we do decide that we want to move in right away.
I guess I was just trying to work out which option would be better from a financial perspective, apart from CGT considerations.