Buy property as investment but move in as PPOR for CGT

No

 

I recently acquired an investment property and therefore have none of the PPOR benefits. From reading this thread, what I understand is to have the CGT and other benefits, I would have to not only move in and change my address on licence/electorate, I would also have to demonstrate genuine electricity, water, and/or internet usage (ie can't simply change address details and leave the house empty)?

 

Yes - it must be a true relocation of your life to a new abode.

All of the above are indicators of that action. Their are other indicators - change of address for ASIC directors addresses or Facebook invites for house warming parties.

I have seen guys who try to do silly paper works of fiction rather than move.

Without question they have crumbled when asked a question by an ATO staff person face to face.

 

Common question is - Can I move in for a few days, weeks etc and move out....Perhaps not and maybe. If you dont move in with an intention to fully occupy the CGT start date just doesnt occur and the residence is merely temporary and not a "main residence".

Really moving in with removal costs, utilities used, connection of things like broadband and foxtel and signs of occupancy are all indicators. Merely changing electoral roll and drivers license isnt enough. I argue if you need to ask a lot of questions surrounding this issue then its likely to be a concern. The other issue is those who suddenly find they must move out - That happens. In such a case keep diligent records that support why etc...eg changed jobs and moved city. No problem. Quit work and left the country to live like a monk, no problem. But to say you moved in on Friday and decided to move out the following Friday really is asking for a intensive review if it crosses the ATO path.

And if you start to tell phurphies to the ATO they can form a opinion you made a false or misleading representation and so not only loss of the CGT concession and a tax bill you may need to appeal but an extra 75% tax and interest on top.

 

Can you please explain the 6yr rule.
If I move out of my current PPOR for 6yr, how do I not have another PPOR, do I have to rent for that period of time and not buy a place to live?

 

There are two ways the 6 year rule can operate

1. You (or spouse partner etc) DO own and reside in another property in which case you MAY have a CGT election to make in a future year. You can only even claim ONE property as your main residence on any day of any year (excepting the 6 month sale overlap rule). If both are apparently eleigible (ie actual residnce and 6 years rule) then you may be able to choose one.

2. You (or a spouse, partner, same sex spouse etc) do not own any other property. In which case you may live in rented accom or parents etc

The property you own and reside in can be anywhere even offshore if it satisfies the relevant rules.

 

If it is a genuine PPOR from day one and then you sell and make a profit of say 200K, no CGT on that which is all good but does that 200k gets added to your salary during tax time for the year you are selling?
So assuming my income is 100k, do i get taxed on 300k(200k profit + 100K salary) or 100k salary only please?

 

If it is exempt no. Not assessable income so not declared.

 

You know its a very common question.....You can literally disregard it and NO calculations are needed. Its like finding $100 on the street. The ATO dont want to know about it. Its not income according to tax law when the sole use of the property has been the taxpayers main residence.

Its literally one of the few tax questions I say you can do it yourself. For the main residence absence rule I strongly recommend advice as there are many things that can trip you up. And the ATO has a intolerance to taxpayers making "mistakes"...The ATO calls it reckless or worse.

 

Adding to this thread given topic is same as thread topic.

Hoping to get people's views on a decision I'm struggling with. I know the answer very much depends on individual circumstances but keen to get thoughts anyway in case anyone mentions anything obvious which I have overlooked.

Plan is to buy IP1 (around $1.5m) and then in 2-4 years' time if cash/borrowing capacity permits, buy IP2 (around $1m). No current PPOR.

Am currently renting and with no dependents and full flexibility to move around, am looking at best way to minimise potential CGT from the IP some time in the future.

Planning to buy IP1 this month or next. Decision to make is whether to move into the property to establish main residence for circa 6 months, then move back out renting again. Then in 2-4 years time, do the same for IP2 – ie move in for 6 months then move back out renting again.

I'm struggling with deciding whether to move into IP1 to establish main residence or just skip the hassle and rent it out from day 1.

Pros for moving in:

• main residence CGT exemption possibility – this clearly would deliver the best tax saving.
• even though main residence for IP may cease when I move into 2nd IP, I can still take advantage of the pro-rata CGT for the period until moving into the 2nd IP (that's assuming I elect 2nd IP to be main residence – and I know that election can be decided down the track when one of the two is sold)

Cons for moving in:

• cost base will be reset in 6 months. It will likely be less than actual cost base of purchase price plus transaction costs. Cost base could be even lower if property price goes down in 6 months' time.
• hassle of actually moving into IP1 properly (per discussions in this thread) and then moving out again.
• If IP1 ceases to be main residence (because IP2 is elected as main residence) then the tax saving is much less.

Anybody have any experience with the strategy of moving in to establish main residence then moving out again that could share their experience? Or anyone else have any other thoughts I might have missed?

 

Would either be new? if so this could result in lots of lost depreciation benefits - I mean if you move and out again.

Do you think property values will go down? If so why would you be buying. You would be better of waiting for the dip to occur perhaps.

 

Not new (although current IP1 I'm looking at is a knock down and rebuild about 4 years ago by the seller).

Honestly don't know. Even if prices are falling, I wouldn't know when is the right time to buy (has it got more to fall? Get in when it falls 5%? or when it falls 10% or 15%?). Hence going with the 'buy when you can to hold long term' rather than trying to pick the market since I've not been able to predict accurately previously.

 

The depreciation "benefits" may or may not be that significant. Any "lost" depreciation may be a maximum of the remaining Div 40 asset value. The age of the property will guide that. If its a new build it would be far higher than a older property which may be quite immaterial as most Div 40 value is eroded in approx 10 years. It does go further mbut its a low % of the orignal cost. If I was a betting man I would say 80%+ is lost in the first 10 years with 20% over the next 8. Ultimately, the amount unclaimed once the assets are used may still be used as a CGT reduction but that path loses 50% of its value. The expected duration of ownership is a factor too. If you were considering demolition or sale its a minor aspect to consider.