PPOR to IP - do I need a valuation?

There are 2 different treatments depending whether the property was a main residence first or a rental first.

If main residence then valuation at date it first becomes income producing is important.

If rented first then no valuation is needed as it will be worked out on a time basis.


Is the valuation done at the date it becomes income producing or the date it ceases to be your PPOR?
 
When it first is used to produce income. That doesn't mean the first date it rented. Its the date it becomes available to rent ie first USED to earn income. Typically date you move out. However....

If there is along gap between date moving out and first rent seek tax advice. The valuation rule may not apply to all cases.:eek:

Example : If you move out and use 6yr absence rule and its not rented for two years then change mind and rent it then the valuation may apply from the date two years later.

Important to seek advice as the valuation rule has strict conditions and ALL conditions must be met.
 
There are 2 different treatments depending whether the property was a main residence first or a rental first.

If main residence then valuation at date it first becomes income producing is important.

If rented first then no valuation is needed as it will be worked out on a time basis.

So would it be correct to say you can use apportionment for both:

1. If was PPOR first (use valuation method when moved out to work out the cost base with apportionment if you moved in proper anytime?)

In this case you can't use acquisition costs, such as stamp duty to boost up the cost base? Only expenses incurred at time of moving out onwards?

2.If was IP first (use purchase price as cost base and use apportionment if you ever moved in proper anytime)

In this case you do use acquisition costs, such as stamp duty to boost up the cost base?
 
So would it be correct to say you can use apportionment for both:

1. If was PPOR first (use valuation method when moved out to work out the cost base with apportionment if you moved in proper anytime?)

In this case you can't use acquisition costs, such as stamp duty to boost up the cost base? Only expenses incurred at time of moving out onwards?

2.If was IP first (use purchase price as cost base and use apportionment if you ever moved in proper anytime)

In this case you do use acquisition costs, such as stamp duty to boost up the cost base?


3. One of the most common reasons you CANT use the valuation basis is when the former PPOR becomes a income producing property yet the 6 year main residence exemption absence rule is used. Lets say you live overseas or interstate in rented accom. Its not automatic just because its a former residence. You would have to apportion in this case too.
 
There are 2 different treatments depending whether the property was a main residence first or a rental first.

If main residence then valuation at date it first becomes income producing is important.

If rented first then no valuation is needed as it will be worked out on a time basis.

So in working out an example for the first scenario (main residence first), say the property was purchased in Year 1 for $1m, it becomes income producing in Year 3 at which a formal independent valuation is $1.2m and in Year 10 it is sold for $1.5m, then for CGT purposes, is the cost base now $1.2m instead of $1m? Have I understood the concept correctly? Capital gain will then be $0.3m?
 
Example : If you move out and use 6yr absence rule and its not rented for two years then change mind and rent it then the valuation may apply from the date two years later.

When you say "use" the 6 yr absence rule, my understanding is that you do this when the property is sold?

For example, if I were to buy a house, live in it for a year, then rent it out for 8 years and then sell. Provided I've rented myself for the 8 years and hence no PPOR (and also did a self valuation at the date the house became income producing) do I have the option of choosing whether to use the valuation as cost base and pay capital gains tax on the difference or use the 6 yr absence rule and only pay capital gains as 2/9 of the gain? Or am I completly missing something?
 
When you say "use" the 6 yr absence rule, my understanding is that you do this when the property is sold?
QUOTE]

Hmmm. Sort of. Generally the 6 year rule doesn't provide a choice. Its rare but provided all the MRE conditions are satisfied, a taxpayer may be able to choose (elect) to pay a lesser amount of CGT by preparing their tax return one way v's another.

A good example is the choice by a new spouse who sells their former MR. If they choose it as exempt the existing home cant also be claimed later for the same period of time.
 
1. You would need to seek expert valuation opinion to comply with tax law obligations to determine the value. This is explained in the ATO document I uploaded. The taxpayer who doesn't self-assess may need to then seek expert opinion. That cost would be deductible. BTW The 1970 property example is pre-CGT so its a no-brainer. No valuation is needed. :D
2. Remember its self assessment. If they disagreed with you they might choose another value and amend. You then have to prove they were wrong. So lets return to point 1.
3. Cost applies if you are the owner. A QS wont increase any deduction in this example other than maximising the deduction claim. All CGT costs after (its an IP) add to that value as the first element of the cost base.

All these issues are taxpayers self-assessment problems and would likely affect final CGT being overpaid perhaps. Good reason to keep diligent CGT records for all properties. Its the tax deduction that is often overlooked.

When you say "use" the 6 yr absence rule, my understanding is that you do this when the property is sold?
QUOTE]

Hmmm. Sort of. Generally the 6 year rule doesn't provide a choice. Its rare but provided all the MRE conditions are satisfied, a taxpayer may be able to choose (elect) to pay a lesser amount of CGT by preparing their tax return one way v's another.

A good example is the choice by a new spouse who sells their former MR. If they choose it as exempt the existing home cant also be claimed later for the same period of time.

Thanks Paul
 
Back
Top