six year CGT exemption clarification

[dajackal]

hi just wondering if i'd be able to claim full CGT exemption given the following scenario:

1) purchased first property using FHOG
2) lived there for just under a year
3) moved back home with parents and rented out the property
4) moved into wifes property (her name only)
5) sell first property within six years of point 3

not sure if I can claim my first property as my main residence given points 3 & 4. can i claim full CGT exemption?

also purchased a couple more IPs along the way. not sure if this affects it or not.

 

[tobe]

yes, but if you put wifes property in joint names, then you cant claim CGT exemption for the first couple of years while you were claiming it for this property.

 

[damacc]

I had a client ask a similar question. See ATO link.

http://www.ato.gov.au/individuals/content.aspx?doc=/content/36887.htm

 

[Dean2012ad]

I believe all your points line up with receiving the full CGT exemption.
Remembering to make sure as Tobe said not to put your wife's property in both names.

Point 5) sell first property within six years of point 3

Depending on your finances, location and how well the property is going, why not:

- Before 6 years is up, move back into the property for 3 months or so.

- Renovate the house (increasing property value, depreciating, and possible rental income)

- Move out, and rent the place, claiming another 6 year full CGT exemption.

You avoid selling costs, and maximise your income, deductions, and final Capital gains.

 

[dajackal]

cheers Dean2012ad...an excellent suggestion financially but not really practical for me.

wifes property is in her name only so all good from that front.

I'd be looking to sell in the next couple of years when the market is hot again, in order to pay down non-deductible debt. Planning on starting a family soon and with the wife out of work for a few years, so having less debt obligations would be a welcome safety net.

 

[Dean2012ad]

I'd be looking to sell in the next couple of years when the market is hot again, in order to pay down non-deductible debt. Planning on starting a family soon and with the wife out of work for a few years, so having less debt obligations would be a welcome safety net.

Probably a good idea in your instance, getting rid of that bad debt is a good move and takes the pressure off declining income when family commitments entail. I have my IP properties loans IO to reduce expendiature in the coming years when we drop an income and start having kids. They are also positive geared which subsidises our PPOR loan. Although, our PPOR may not be as expensive as yours (which makes a big difference).

But always good to have an investment up the sleeve, and would be more expensive to buy another IP down the track (stamp duty, higher valued housing market).

 

[Terry_w]

Spouses only get one CGT exemption for a main residence between them.

 

[marg4000]

cheers Dean2012ad...an excellent suggestion financially but not really practical for me.

wifes property is in her name only so all good from that front.

.

Not so.

As a married (or defacto) couple you are only entitled to ONE CGT exempt property and it does not matter whose name is on the title.

AND if your wife owns a property you are not entitled to a FHOG either, again it does not matter if the names on the title are different.

Better get some good accounting advice from a professional.
Marg

 

[dajackal]

AND if your wife owns a property you are not entitled to a FHOG either, again it does not matter if the names on the title are different.

We were engaged and not in a de facto relationship at the time of purchase. I clarified eligibility with the OSR before purchasing/claiming FHOG.

As a married (or defacto) couple you are only entitled to ONE CGT exempt property and it does not matter whose name is on the title.

Sorry, I'm still not sure what this means given my situation. Do you mean to say that I cannot claim my first property, which I alived in alone, as my main residence for CGT purposes?

 

[coastymike]

Think she is saying to get some advice

 

[dajackal]

Spouses only get one CGT exemption for a main residence between them.

thanks for all your insightful posts. If I'm not mistaken i should be able to claim the CGT exemption between points 1-3.

i.e. from when i moved into the property to when i was living at home with the parents, but ceasing when i moved in with my spouse.

just to clarify, does having other IPs prevent me from claiming CGT exemption?

edit: my accountant advised that I am not able to claim CGT exemption...but I can't see why I can't

 

[dan c]

.

just to clarify, does having other IPs prevent me from claiming CGT exemption?

No.

.
edit: my accountant advised that I am not able to claim CGT exemption...but I can't see why I can't

Because, as others have pointed out, a couple can have only one PPOR between them. They can't have one each.

So, to keep the full exemption for your wife's house, your house is not eligible for the main residence exemption, from the day you moved into your wife's house.

 

[dajackal]

Because, as others have pointed out, a couple can have only one PPOR between them. They can't have one each.

Yup no worries I understand it now. Cheers

But there's nothing preventing me from claiming it as my PPOR (and hence CGT exemption) when living at home with my folks and apportioning the CGT liability based on days as PPOR/not PPOR, right?

My accountant seems to think that I can't claim the exemption at all as the property has been used for income producing purposes, and the fact that I have other investment properties.

 

[Ross]

Along similar lines to the above, was wanting clarification if my possible future scenario would give me the 6 year CGT exemption:
-Looking to move out of Sydney PPOR (always been our PPOR since purchase in 2008);
-Rent out PPOR;
-Move interstate with family and rent a house;
-I currently have two other investment properties but obviously not claiming PPOR exemption on them;
-Would look to sell Sydney PPOR before 6 year CGT exemption runs out;

Questions:
Do I and the whole family all need to move back in and live in for a period of time before we then sell to claim CGT exemption ?
How long would we need to move back for ?
Could I just move back myself say for a couple months to do a minor cosmetic reno and then sell ?

Comments really appreciated
Ross

 

[Terry_w]

Questions:
Do I and the whole family all need to move back in and live in for a period of time before we then sell to claim CGT exemption ?

no need to move back in.

 

[spanna]

Can i chime in a pick your brains Terry?
We are living in our ppor atm, have been for nearly 1 year
However will look at moving back to my parents place while they go OS for 12 months and claiming the ppor as an IP,
The PPOR has development potential (Can become a duplex)
What are the tax implications with developing the PPOR residence? we are probably going to keep one and sell one or even sell 1 block straight away and keep the other and build new PPOR.
What would be the best structure to do this under do you think.
Thanks in advance!

 

[Paul@PFI]

Spouses only get one CGT exemption for a main residence between them.

And one land tax exemption too.....I recall several years back a former client found out his waterside Wolseley Rd house was subject to land tax that way. Ouch. OSR went as far as citing his drivers license address and his electoral roll all showing his residence was with his new wife at her home. And he had a speeding offence and was asked by the officer if his address was still that on his license....They threw that fact at him too. His house was vacant in Pt Piper for three months (over 31 Dec) before they moved in and he was required to pay land tax. He wanted to argue he could elect his MR for land tax....No its not the same as the CGT election for a main residence. he could argue the overlap etc... Its a issue of fact...OSR came well armed.

 

[Terry_w]

Can i chime in a pick your brains Terry?
We are living in our ppor atm, have been for nearly 1 year
However will look at moving back to my parents place while they go OS for 12 months and claiming the ppor as an IP,
The PPOR has development potential (Can become a duplex)
What are the tax implications with developing the PPOR residence? we are probably going to keep one and sell one or even sell 1 block straight away and keep the other and build new PPOR.
What would be the best structure to do this under do you think.
Thanks in advance!

This is very complex so you should seek advice. It may change from being a capital acccount asset to revenue account.

 

[Paul@PFI]

Can i chime in a pick your brains Terry?
We are living in our ppor atm, have been for nearly 1 year
However will look at moving back to my parents place while they go OS for 12 months and claiming the ppor as an IP,
The PPOR has development potential (Can become a duplex)
What are the tax implications with developing the PPOR residence? we are probably going to keep one and sell one or even sell 1 block straight away and keep the other and build new PPOR.
What would be the best structure to do this under do you think.
Thanks in advance!

1. Valuation reqd when you move out (CGT purposes the clock starts)
2. When you develop a CGT trigger occurs. CGT event occurs and land becomes "trading stock"....Apportionment etc.
3. If you build a new house and sell it GST also needs to be considered.

Best structure may be the one you have now - You own it. Another structure like a trust would trigger CGT, duty etc.

Worth getting personal advice in such complex arrangements.

 

[spanna]

Thanks very much guys,
I thought it would have implications. Need to weigh up weather or not the savings from the move will be worth it if we are going to do the development sooner rather than later. Do either of you know a good property accountant/lawyer in WA?
Thanks again