Question about CGT on property

[eternit]

Hi,

If someone lives in a property for more then 2 years and then moves to another city and converts the current PPOR to IP then should he be getting a valuation to see the current value of the property and say if he sells the property 5 years later he will be paying tax on sale price - valutaion figure?

I didn't think this is true but my friend says his account said its true.

Thanks.

 

[jrc]

Yes, if the property has been PPOR from purchase until rented out its cost base for CGT is value at time it becomes an IP. However, if you don't hvae another PPOR your first property can retain exemption for CGT for 6 years

 

[JIT]

A related question, what if you lived in your PPOR for 1 month, then have to move out for unforseen reasons eg. interstate job, can you retain the 6 year CGT exemption on this property?

 

[Leikela]

JRC is correct with regards to the 6 year rule, however where the property is not subject to the CGT exemption, I've noticed many times on this board people talk about getting a valuation done at the time it ceases being PPOR and then treat the gain as being the date it sold less the valuation that was done. My understanding is that the Capital Gain for tax is calculated as the total gain multiplied by the number of days it was an investment property. For example (disregarding the 6 year rule to keep it simple):

Buy a house for $200,000, use it as PPOR. 5 years later it becomes IP and is worth $300,000 at this point. 11 years after purchase you sell it for $450,000. According to many on this board, the gain for tax would be $150,000 ($450,000 - $300,000).

However, I would have thought the gain for tax is calculated as:
Total Capital Gain of $250,000 x days held as IP (2190 days) / total days held (4015 days) = $136,364.

??

 

[Rob G.]

A related question, what if you lived in your PPOR for 1 month, then have to move out for unforseen reasons eg. interstate job, can you retain the 6 year CGT exemption on this property?

Yes.

Cheers,

Rob

 

[JIT]

Yes.

Cheers,

Rob

Thanks Rob, that's what I suspected.

 

[jrc]

In the instance the initial poster put Section 118-192 will be applicable
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.192.html

 

[Rob G.]

JRC is correct with regards to the 6 year rule, however where the property is not subject to the CGT exemption, I've noticed many times on this board people talk about getting a valuation done at the time it ceases being PPOR and then treat the gain as being the date it sold less the valuation that was done. My understanding is that the Capital Gain for tax is calculated as the total gain multiplied by the number of days it was an investment property. For example (disregarding the 6 year rule to keep it simple):

Buy a house for $200,000, use it as PPOR. 5 years later it becomes IP and is worth $300,000 at this point. 11 years after purchase you sell it for $450,000. According to many on this board, the gain for tax would be $150,000 ($450,000 - $300,000).

However, I would have thought the gain for tax is calculated as:
Total Capital Gain of $250,000 x days held as IP (2190 days) / total days held (4015 days) = $136,364.

??

s.118-192(2) ITAA97

First element becomes market value, and all other elements are reset to zero.

You can still use the 6 year exemption for the market value date.

Cheers,

Rob

 

[FletcherTax]

JIT - common advice in practice is to live in the PPOR for at least 6 months before applying the 6 year exemption, if applicable. Some accountants also suggest 3 months. (6 months minimum to satisfy the FHOG)

Having said that, the ATO has not put down a quantitative time frame.

Fletcher Tax Accountants

 

[RumpledElf]

My understanding is that the Capital Gain for tax is calculated as the total gain multiplied by the number of days it was an investment property.

See, that seems odd to me.

My house got valued by the bank at $75,000 last year before we renovated the bathroom (which at the time was a smoking hole in the ground, mostly rubble). I have to pay capital gains tax on it for that entire year since it got valued because we've had two houses in that period.

If I sell it for $75,000, a year on, I've made no capital gains since I moved out (in fact after agents fees and renovating the bathroom I've made a substantial capital loss), why on earth would I have to pay tax on it?