Quick Q PPOR tax implication

[wealthyjay]

Hi All

Am currently building a new house to replace current PPOR, and may have the need to sell shortly after completion.

Just wondering what implications ie CGT will I potentially have in this situation here in W.A. I understand that CGT may apply if I sell within 6 months of completion, or does this only apply with new house & land?

Thanks much

 

[julia]

Wealthyjay,

Are you living in the current PPOR while you are building? Which one do you intend selling on completion?
You are allowed to have two PPORs for 6 months section 118-140, if the old PPOR is not used as a rental for 12 months before it is sold. The 6 months back dates from the date of sale of the old PPOR.
If you want your new place to be totally exempt from CGT you will need to use your PPOR on it from the time you bought the land so one of them is probably going to have a CGT problem.
Section 118-150 allows you to exempt the land before you build as your PPOR as long as you move into the house as soon as practical on completion and you live there for at least 3 months. Note this back dating of your PPOR to before you built can only go as far back as 4 years.

Julia

 

[wealthyjay]

Wealthyjay,

Are you living in the current PPOR while you are building? Which one do you intend selling on completion?
You are allowed to have two PPORs for 6 months section 118-140, if the old PPOR is not used as a rental for 12 months before it is sold. The 6 months back dates from the date of sale of the old PPOR.
If you want your new place to be totally exempt from CGT you will need to use your PPOR on it from the time you bought the land so one of them is probably going to have a CGT problem.
Section 118-150 allows you to exempt the land before you build as your PPOR as long as you move into the house as soon as practical on completion and you live there for at least 3 months. Note this back dating of your PPOR to before you built can only go as far back as 4 years.


Julia

Am renting elsewhere while the new house being built, so only one PPOR to worry about (this one). therefore I guess its build, then move in for at least 3 months before bailing out to lose CGT costs?

That should be ok then

 

[julia]

Wealthyjay,

Then as long as you have owned the land for less than 4 years before you move in and you have lived there for 3 months no CGT when you sell. Make sure you have evidence you lived there ie change your name on the electoral roll.

Julia

 

[wealthyjay]

Wealthyjay,

Then as long as you have owned the land for less than 4 years

This bit confuses me, Ive owned the property and lived in existing house for >4yrs, before pulling the house down. Does the above apply to vacant land, or any property?

 

[julia]

Wealthyjay,

Didn't realise you demolished the previous house. It is ok to exempt the property as your PPOR for the whole time providing you do not leave it as vacant land without a house for longer than 4 years. And a warning, if you sell this land before you build you will be up for CGT for the whole time you owned it. To get the PPOR exemption there must be a dwelling on the land when you sell.

Julia

 

[coopranos]

Also be careful of GST implications for selling a house you just built if you are going to sell it upon completion.

 

[wealthyjay]

Thanks guys, much appreciated.

I think I'm safe Not 100% sure what we are going to do, but at the moment is to build and live in it for a short time before selling.

 

[julia]

Wealthyjay,

As long as your intention was to build it to live in you have nothing to fear from the GST unless you are a builder or something like that and in the business.

Julia

 

[coopranos]

Yes, Julia is correct that if your intention is to move in and treat it as a PPOR you have nothing to fear from GST, however a lot of people are abusing this and just assuming if they say that their intention was to move in, the ATO just has to let them off the hook. Your circumstances and story should clearly point towards your having intended to do so.
You do not have to be a builder to cop GST, if your intention was a profit making venture, and a single transaction can count as a profit making venture (ie you could still be liable for GST even if you have never built before and never intend to build again).

 

[alpina]

Hi Julia,

Im a little confused.

1. Say we have a PPOR which we currently live in.
2. We find a house that we want to buy as our new PPOR.
3. The house is in a dipilated state and in our opinion unliveable and we choose not to live in it in its current state.
4. We buy the house and lodge a DA to demolish and commence rebuilding a new house on the land within 6 months.
5. House takes 3 years to rebuild during which time we continue to live in our existing PPOR.
6. 3.5 years later we more into our new house and sell our existing PPOR similtaneously.
7. We live in our new PPOR for 2 years before selling it.

In this situation, are we up for CGT or GST?

Many thanks,

Julie

 

[Bandita]

Hi Julia,

Im a little confused.

1. Say we have a PPOR which we currently live in.
2. We find a house that we want to buy as our new PPOR.
3. The house is in a dipilated state and in our opinion unliveable and we choose not to live in it in its current state.
4. We buy the house and lodge a DA to demolish and commence rebuilding a new house on the land within 6 months.
5. House takes 3 years to rebuild during which time we continue to live in our existing PPOR.
6. 3.5 years later we more into our new house and sell our existing PPOR similtaneously.
7. We live in our new PPOR for 2 years before selling it.

In this situation, are we up for CGT or GST?

Many thanks,

Julie

Hi alpina,

I'm not an accountant, but I would say No - you're not up for any CGT or GST at all - as all of your purchases, demolitions, rebuilding were for your own PPOR.

You're doing exactly what many other home owners do when they want to upgrade or move their PPOR - no CGT or GST involved.

Cheers,
Jen

 

[julia]

Alpina,

Sorry I have been off line for a little while, travelling.
As long as your intention at anytime was not to resell at a profit at a profit the property does not become part of your trading stock so will not force you to register for GST so no reason to charge GST. As far as income tax is concerned it is all about your intention again. Factors the ATO consider relevant are
1) Whehter there is another valid reason for purchasing the property
2) The length of time you owned the property
3) A valid reason for the changes that is not related to a profit making scheme
4) Not being a developer, real estate agent or builder.

Julia