PPOR to IP
- Thread starter alba
- Start date
The above answers are correct, but you must intend to live in the house as PPOR upon purchase. This has to be seen as your PPOR/ address.
Marg's info is correct... In this case you can elect to have the CGT exemption on one property only. If you choose the new PPoR and then, yes CGT would be liable on some of the capital gains. It does get complicated, so you should speak to an accountant before deciding what to do.
BTW, the six year exemption started because occupations such as police and teachers got short term postings in rural areas and kept their PPoR in the city. They were then liable for CGT on their PPoR, so the government brought in the six year exemption.
You can read more about CGT on the ATO website or in this PDF from the ATO p72-74.
http://www.ato.gov.au/content/downloads/NAT4151a_07.pdf
From an article I wrote.
Capital Gains
A special rule applies when you move out if a property you purchased after the 20/8/1996 and commence to use it as a rental. The cost base of the property is reset to the market value of the property at the time you move out (s 118-196) so you will need to get a real estate agent to give you the value of the property at that time should you ever sell it. Please note that this reset only occurs once during your time of owning the property, and it occurs at the time the property is first used to produce income (ie first rented out). If the house was purchased before this date, the cost base is still what it was previously but the taxable gain is apportioned by the days it was held privately vs rented out.
Another interesting rule is the 6 year leave of absence rule. One you leave the property, you can choose to have it remain your place of residence (making the house tax free on sale) for another six years if you continue to rent it out, or indefinitely should you just let it sit. The only proviso is that another house cannot be considered to be your place of residence during this time. You do not need to make a final decision on which house will be your place of residence until you sell one of them. You can move back within the 6 years, make the house your place of residence again, move out and a brand new 6 year leave of absence rule can apply.
This rule is useful for people who move out to rent or move back home to their parents as they are not living anywhere that they own so they can keep the extension going. It is also useful for people going overseas and intend to rent out their house while they are away.
Also note that should capital gains apply to selling your house, if the house was purchased after 20/8/1991, you can add to the cost base of the property expenses you have not claimed as a deduction, even expenses that were incurred when the house was used privately. You cannot use costs incurred to increase the cost base if the costs were incurred before the house was reset to market value.
Of course capital gains does not apply to properties purchased before 20/9/1985 unless they are substantially renovated.
A typical misconception held by many investors is that if you move into a rental prior to selling it, it will be tax free on sale. This is incorrect. Once a house is not covered by a principal place of residence exemption, there will always be a capital gains tax liability if the property is sold.
Capital Gains
A special rule applies when you move out if a property you purchased after the 20/8/1996 and commence to use it as a rental. The cost base of the property is reset to the market value of the property at the time you move out (s 118-196) so you will need to get a real estate agent to give you the value of the property at that time should you ever sell it. Please note that this reset only occurs once during your time of owning the property, and it occurs at the time the property is first used to produce income (ie first rented out). If the house was purchased before this date, the cost base is still what it was previously but the taxable gain is apportioned by the days it was held privately vs rented out.
Another interesting rule is the 6 year leave of absence rule. One you leave the property, you can choose to have it remain your place of residence (making the house tax free on sale) for another six years if you continue to rent it out, or indefinitely should you just let it sit. The only proviso is that another house cannot be considered to be your place of residence during this time. You do not need to make a final decision on which house will be your place of residence until you sell one of them. You can move back within the 6 years, make the house your place of residence again, move out and a brand new 6 year leave of absence rule can apply.
This rule is useful for people who move out to rent or move back home to their parents as they are not living anywhere that they own so they can keep the extension going. It is also useful for people going overseas and intend to rent out their house while they are away.
Also note that should capital gains apply to selling your house, if the house was purchased after 20/8/1991, you can add to the cost base of the property expenses you have not claimed as a deduction, even expenses that were incurred when the house was used privately. You cannot use costs incurred to increase the cost base if the costs were incurred before the house was reset to market value.
Of course capital gains does not apply to properties purchased before 20/9/1985 unless they are substantially renovated.
A typical misconception held by many investors is that if you move into a rental prior to selling it, it will be tax free on sale. This is incorrect. Once a house is not covered by a principal place of residence exemption, there will always be a capital gains tax liability if the property is sold.
so if I want to get the first home owners grant on my first property I need to live in it for 6months then I can put renters in and turn it into a I.P for upto 6yrs with out paying CGT
How will this effect the type of loan I take out?
I have $30k saved and was hoping to put down 5% deposit then the rest into an offset account. Would I be better off Negative Gearing or paying off P&I?
I'll be looking at buying a second I.P in 2-3yrs I hope
How will this effect the type of loan I take out?
I have $30k saved and was hoping to put down 5% deposit then the rest into an offset account. Would I be better off Negative Gearing or paying off P&I?
I'll be looking at buying a second I.P in 2-3yrs I hope
negative gearing
does anyone know...
In the six year exemption situation where you live in the place for six months then move out for say 4 years and then move back in before you sell (and claim this property as your PPOR) can the rental income in that time you have been away be tax effective in terms of negative gearing against your mortgage? I am guessing that may void the CGT free situation. If so then does the rental income become income that is therefore taxable?
does anyone know...
In the six year exemption situation where you live in the place for six months then move out for say 4 years and then move back in before you sell (and claim this property as your PPOR) can the rental income in that time you have been away be tax effective in terms of negative gearing against your mortgage? I am guessing that may void the CGT free situation. If so then does the rental income become income that is therefore taxable?
