6 year PPOR exemption clarification

Hi,
I am trying to read up on the 6 year PPOR exemption rule, and I am unsure how it applies in my case. We bought a house in 2013 and used it as our PPOR from 2013- Oct 2018. During this time we started construction on a new house, which we moved into in Nov 2018. We put our old house on rent from Nov 2018 - Oct 2021.

Initial cost of the new house was say X. Over the past 3 years, we have done additions to the new house (outdoor kitchen, window furnishings, landscaping etc), which amounts to Y. Total cost base for the new house is X+Y as of Nov 2021.

Earlier this month we sold the old house. Since we sold it within 6 years of moving out, we want to claim the PPOR exemption on the old house. Is my assumption correct that we don't have to pay any CGT on the sale of the old house ? I read somewhere that the CGT can be transferred to the new house. (Cost price of new house in Oct 2018 (X) + Improvements (Y)) becomes the base price for new house, I get a valuation done on the new house as of Nov 2021 (Z) and Z-(X+Y) becomes the CGT on the new house, to be paid when I sell this house.

Is my understanding correct ? How is the CGT calculated for the new house when I sell this, say 7-8 years later ?
Related question - Can I get valuation for the new house done by a Real estate agent, or does it have to be from a professional valuation company?

Apologies, if this sounds too confusing.

Regards
Manish

 

You mean the "main residence CGT exemption". PPOR is a reference to state land tax.

Personal tax advice would address what issues, how its calculated and all the specifics. There is likely no relevance to a valuation as the formula is s118.185 must be used to apportion based on time. You do need to know what records you should already be maintaining so future CGT profit is minimised to as much as $0

No CGT cant be transferred or rolled over. That is 100% incorrect. However what you choose for one dwelling will adversely affect the other as no two days can normally both be exempt. eg If the former home is chosen then the new home is taxable.

When you use the 4 year "backdated main residence rule" for a new build it can adversely affect the absence rule and it is worth comparing the two cases so you are aware of the value in the choice.

 

Yes you can choose to continue treating the old house as your main residence from Nov 2018 until sale date under the 6 year absence rule.

If you do choose to apply this, then your new home will be liable for CGT since its acquisition until sale date of old home. Can potentially be reduced to NIL with good records as Paul said.

Cost price + improvements = cost base of new house (simplified). No valuation needed

 

no

 

This might be the case but not enough info to conclude.

 

If I do not do a valuation of the new house now, how will I know how much has the house appreciated from the date I moved in to the sale date of old home, since I am liable to pay CGT on this gain?

 

This would apply to that situation too
Tax Tip 244: A valuation is not needed if Moving into an Investment property Tax Tip 244: A valuation is not needed if Moving into an Investment property

 

Its irrelevant as tax law imposes a pro-rata apportionment to split the gain based on taxable days and exempt days. This is the general rule for ALL CGT property calcs. However, one exception to this exists. That is a special rule in s118.192 which ONLY applies if a property has always been a home and then is first used to produce income. This special rule draws a line in the sand for the past and from that date onwards the general rule thereafter applies. The general rule contains a formula all taxpayers are to use...s118.185 ITA97

Can this produce unusual outcomes ? Yes it can. Both to benefit or harm taxpayers based on their subjective opinions. Hwever so could a valuation based approach as this imposes a potential cost and also all sorts of subjective "games" taxpayers could use to choose low / high valuations to game a benefit. Hence one rule applies that is uniform that limits the need for extenral opinions. The general view is a tax law should require minimal external requirements and s118.185 merely requires records of dates etc which are free and available to each owner.

Many taxpayers complain but they often fail to consider that they can "double dip"and reduce CGT through third element costs. These are the non-deductible ownership costs while they live there. Not only do they get a apportionment but they also get the opportunity to reduce the potential profit prior to apportioning for the private costs. It cant create a loss but can eliminate the gain to $0 so that the apportionment of $0 is...zero

 

You would be liable for CGT for the whole period you owned the new house not just from the date you moved in. So regardless of whether you get a valuation done or not, for CGT purposes the original purchase price would form part of the cost base

 

It would be apportioned based on the number of days that it was not the main residence for CGT.
If this was say 30% it would be taxed on 30% of any capital gain, less the 50% CGT discount, for example

 

Got it. Thank you all !