6 year Main Residence CGT rule & 5 year GST rule

Discussion in 'Accounting & Tax' started by zaobaowang, 2nd Nov, 2020.

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  1. zaobaowang

    zaobaowang Well-Known Member

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    Hi, I've got a few questions in relation to the above topics.

    I moved into my current house (newly built) in Dec 2019 and am planning to move out in Dec 2020 and rent it out. I understand that I can rent it for 6 years with GGT exemption as long as I don't claim another main residence. My questions are:
    1, when I rent it out in Dec 2020, do I need to obtain a valuation at the time? If so, should be it be done through a professional valuer or a Real Estate agent is sufficient.

    2, If I sell the property between Dec 2020 and Dec 2026, would it be GGT free? (while it's been rented out or vacant - when there is no tenant)


    I intend to move to my relative's house in Dec 2020 (new house construction completed in Oct 2020) and it is rent-free. My relative intends to sell the house in at least 5 to 10 years. He was told, from tax perspective, although I can live there rent-free, it is better to sign a lease agreement with me to meet 5 year GST rule so as to having the option to sell it in 5 years. My questions are:
    1, if the above is correct, should a valuation be done at the time we sign the lease?
    2, Can we use an online lease agreement template? Does he need to lodge a bond?
    3, should we get at least 3 Real Estate appraisals and using the middle price as the rent price?
    4, how often should we renew the lease? Can we sign a 5 year lease? What about rent price then?
    5, If we don't sign a lease agreement and I live there for 3 years, then move out. He rents it for another 5 years and sell it, would it be GST free at the 8th year? Basically does the house need to be rented out first (when it firstly becomes available after construction completed) to meet the 5 year GST rule?

    Thanks!
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    1. Yes. Not necessarily. A REA valuation may suffice if its is sufficienlty detailed and based on recent sales
    2. Perhaps. Based on the valuation in 1. and selling costs it could be a loss and with non-deductible ownership costs in the 5 years its a likley outcome.

    I dont agree with your friend and the efforts to avoid GST merely by losing money for 5 years. Bizarre really. They should obtain their own tax advice. I bet they dont know how the 5 year rule really works anyway. There seem some unorthodox views here and I wonder how they will account for ownership costs ? Since they receive no rent ?
     
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  3. zaobaowang

    zaobaowang Well-Known Member

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    NSW
    Thanks Paul,

    Could you elaborate this a little more: selling costs it could be a loss and with non-deductible ownership costs in the 5 years its a likley outcome. - why would it be a loss when I sell it?

    With regards to the 'rental', it is my cousin's property, there is a small mortgage on it. He is not 'carrying on a enterprise', he built this one for rental investment but he is happy for me to stay there rent-free for a few years given we are very close. So what should he do in this situation? We really appreciate your advice.
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    1. If the valuation now + selling costs means its a loss then the choice to use the exemption is a matter to consider

    2. Why mention GST on sale and the 5 year rule and creating a lease? I suspect tax advice would assist with determining how GST applies. If he constructed it for rental and then wants to have a friend stay for nil rent thats not an investment purpose. He should get personal tax advice. It doesnt make sense to lose money and all deductions to avoid GST if it applies. The GST "new residential premises" rule and the 5 year exemption is not likley met. The sale by a first owner may be a taxable supply even if sold at year 7 etc
     
    Pingu1988 likes this.
  5. Mike A

    Mike A Well-Known Member

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    if your friend has claimed GST input tax credits during the development they are going to have a Div 129 GST Adjusment.
     
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