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6-Year CGT Tax Rule

Discussion in 'Accounting & Tax' started by C-mac, 29th Apr, 2016.

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  1. C-mac

    C-mac Well-Known Member

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    I'm very familiar with this rule for PPOR property that is rented out as an investment. In a previous property that I have since sold, I benefitted from this rule greatly.

    But for that one, I only had one 'cycle' of 6 years.

    I have a second PPOR that i now rent out as an investment under the 6-year rule. I moved out about 3 years ago. When the first 5.5 or so years comes to an end (so another 2.5 years time), I'll move back in for 6 months, and then move out again tp.have another 6 years of rental goodness.

    My question is: at what point do i order the valuation? My accountant said I need to keep valuation records at each 6 year stage, should the ATO wish to see them to prove anything. Would i order the valuation when i move back in? Or when that 6 month period is coming to an end, and I'm mpving back out again?
     
  2. Foxdan

    Foxdan Well-Known Member

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    @Terry_w is that possible? Can you move back in for 6 months to extend it out for another 6yrs capital gains free? That seems an easy loop hole to abuse to have a capital gains free investment property....but I assume you would have to rent a home to do it in between
     
    Last edited: 29th Apr, 2016
  3. C-mac

    C-mac Well-Known Member

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    Hey Foxden, yes it is possible. The term '6 months' isn't prrscriptive but rather suggested as a term to provide sufficient evidence to the ato that you lived in the property as a home, again (two quarterly billing cycles worth, in your own name, will help support this).

    Oh and the other caveat is that you still must have lived in your home when first purchased, for (I believe, Terry??) 12 months minimum, upfront, which I did. I did 2 years, in fact.

    If you keep every skerrick of a printed bill, rate, notice etc., all in your own owners name (which I have), this evidence may be required by the ato years down the track.
     
  4. C-mac

    C-mac Well-Known Member

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    And yes, it works if you are ok to rent a home in between or move in with a friend/family.

    The tactic isn't for everyone, but some investors such as myself will have this as part of the strategy.

    Don't quote me but i believe the idea behind it was to allow PPOR owners flexibility (e.g. if they need to move interstate or overseas due to work for a couple years, they would be able to at least rent out their home to pay the mortgage off, whilst renting elsewhere, and not be punished by being slapped with apportional CGT payment requirements later on).
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it can work.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No valuation would be needed if you are going to use the 6 year rule as it is still your main residence.

    If you didnt live in this property from purchase then there would be no valuation either as CGT is worked out on a % of time basis.

    If you lived in it initially and moved out you would normally need a valuation at the point it becomes income producing, but not needed if you use the 6 year rule.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Valuation rule under s118-192 does not require a formal valuation. It can be self assessed, agent opinion. Ensure adequate supporting evidence is available. ie Plucked from air isnt enough.

    s118-192 ONLY apply in one situation
    1. Occupied as PPOR since acquisition; and
    2. FIRST becomes income producing

    Thereafter if you re-dip the 6 year rule this just covers exempt days v's taxable days. The first element cost base remains the valuation / date.

    Ensure all non-deductible ownership costs in the subsequent 6month periods of occupancy as PPOR are recorded as they add to the cost base. It doesnt need to be 6 months BUT it does need to meet the test of being your main residence and fully occupied. A temporary "move"would fail this and its important you move in for maybe two, three or more months.
     
  8. Ouga

    Ouga Well-Known Member

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    "Trying is the first step towards failure" Homer
    While we are talking about valuation, I was wondering how a valuation can be done retrospectively. So say you have moved out of your previous PPOR a couple years ago and it is an IP but no valuation was done at the time you moved out. Can a valuation be done in retrospect? How would that work? Is it enough for the ATO to get a few similar sales around that time to evaluate the property?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, a valuer can do this.
     
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  10. C-mac

    C-mac Well-Known Member

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    Thanks folks for the insight.

    Lucky for me that when i moved out and it became income-producing, i got a formal valuation anyway (seeing as i also happened to refinance it at this time).