working out CGT

[Paul j F]

I would like to know what options I have in working out the CGT on the sale of an IP that was once our PPOR.

purchased in 2002 as PPOR for $174k
Became IP in 2006 when I estimate the house was valued at $320-340k
Now on market and expect $420k

I understand that,
profit = sale price - value in 2006.
increase while it is PPOR is not taxed.
With CGT I get 50% reduction on profit and the other 50% is taxed at my current tax rate.

Am I correct?
What are my options for valuing the property in 2006?
Are there other options?

I cant extend the PPOR past 2006 as we bought another PPOR that did very well between 2006 and 2009. It also then became and IP in 2009, so when we come to sell that one we need it to be the PPOR for 2006 on.

 

[marg4000]

You will have to get a formal valuation for the date you vacated the property in 2006. Your unqualified estimate won't be acceptable to the ATO.
Marg

 

[coastymike]

Just because you have another ppor that has done well and has a capital gain doesnt rule out using the six year absence rule. What about all the third element costs that will get added to the cost base. How long will you keep the current ppor. Cgt might be tiny and remember time value of money

 

[Paul@PFI]

You will have to get a formal valuation for the date you vacated the property in 2006. Your unqualified estimate won't be acceptable to the ATO.
Marg

Not true. You can self assess provided you have sufficient reliable basis to do so. You need data and evidence to defend your position if asked. A formal valuation is not required. RP Data ?? Sales History in 2006 ? Comparative properties ? Written REA opinion ?

 

[Paul j F]

Yes I would have thought that median prices, comparitive sales etc would be all that any qualified estimator would use anyway.

In regards to the 6 year absence rule I was of the assumption that I can only have one PPOR at any single point in time. Or can the 6 year abscence rule overlap between properties?

Property #1had largest capital growth whilst it was PPOR. It became IP #1and we purchased property #2 as PPOR. During the period that property #2 was our PPOR it had significant growth whilst IP #1 only had very moderate growth. Property #2 then became IP #2 and has had average growth since. We purchased property #3 as PPOR. Property#3 also became IP but has had very little growth as PPOR or as IP. We have never moved back into any IPs and wont as they are interstate.

We are selling IPs 1 and 2 to fund another venture. What options do we have?

 

[Terry_w]

In regards to the 6 year absence rule I was of the assumption that I can only have one PPOR at any single point in time. Or can the 6 year abscence rule overlap between properties?

Can't overlap and you can only nominate one, but you can choose which one.

 

[Paul@PFI]

Can't overlap and you can only nominate one, but you can choose which one.

Provided both were actually a residence ! You cant choose a MRE for a property that wasn't a residence at any time. A taxpayer can however choose (elect) which property will be taxed if both are eligible for a partial MRE. That always comes with a decision - If you lessen CGT now the other property will be liable for CGT and you wont know what that impact will be in the future.

The only overlap rule is when you move out of a PPOR and sell it within six months of moving into the new PPOR. That six months is disregarded so no apportioning etc is needed.

The common approach is to always maximise exemptions and then to defer taxing as far and as long as possible - You may never sell the other property. If you do plan to sell both then choose the least tax option based on estimated selling prices after costs. Its a reason why maintaining diligent and accurate CGT records as part of your annual tax is important. It guides tax savings.

 

[Terry_w]

Provided both were actually a residence ! You cant choose a MRE for a property that wasn't a residence at any time. .

That goes without saying.

 

[Paul@PFI]

That goes without saying.

Not every client thinks so logically in the quest for saving taxes. You may be surprised how may people ask if their IP can be partially / fully exempt when its sold if they elect it to be their MR instead of where they actually live.

 

[Terry_w]

Not every client thinks so logically in the quest for saving taxes. You may be surprised how may people ask if their IP can be partially / fully exempt when its sold if they elect it to be their MR instead of where they actually live.

I guess that is true!