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Buying a PPOR that can be subdivided or GF added

Discussion in 'Accounting & Tax' started by dabbler, 13th May, 2016.

  1. dabbler

    dabbler Well-Known Member

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    Hi All,

    From a tax perspective, how is it best to approach buying an IP that may turn into a PPOR that has the ability to add a second dwelling or GF, if dwelling maybe subdivide the block but still retain as rental.

    Is there any benefit in buying as a PPOR first and living there firstly ?

    Or is it similar to just buying as IP and then adding a second dwelling as IP

    What changes if you will buy then split & build selling the new place and portion of land ?

    What way have you done this ? What do you feel is best.
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A PPOR cant have a GF. They dont mutually exist
     
  3. dean2012ad

    dean2012ad Member

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    Tax Tip 120: CGT and moving into an Investment Property

    Tax wise you are always open to Capital Gains Tax (CGT) if it is first an IP. However this can be reduced by living in the property as a PPOR later and doing this proportionally longer then the IP period, and other ways:
    Tax Tip 119: How to Reduce CGT on Investment Property (Part I)

    This also means keeping receipts of everything to do with maintaining the home in the years as a PPOR, which is a bit annoying.

    The granny flat or secondary dwelling make the property proportionately open to GCT in the period of you residing in the main dwelling as PPOR.
    If subdivided and sold, CGT and/or GST will be payable.

    I think there is a greater benefit in having it as your PPOR first then IP i.e.

    -Reduced chance of CGT payable and the amount
    You can use the absent from main resident rule (6 year rule)

    Tax Tip 23: The 6 year Absent from Main Residence Rule

    I have done it IP first then PPOR with a GF to continue on a portion as IP, but this worked better for my situation i.e. family, savings...

    Taxed more it may be, but good structure and strategy can limit the amount.
     
    Last edited: 15th May, 2016
  4. dabbler

    dabbler Well-Known Member

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    Really ? Why ?
     
  5. dabbler

    dabbler Well-Known Member

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    I have a situation where we were looking for and contracted a place with a view as PPOR, but before settling some medical problems have arisen that mean we probably cannot move realistically for 6-12 months.

    Thinking through all options.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The GF cannot also be a main residence. Same as wanting a PPOR does not make it a main residnece until occupied. Buying a prop and not living in it means CGT prorata always occurs but buying and occupying kick statrts a likely minimum 6yrs tax free in many cases.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Paul, what the owner about occupying the main house and the granny flat and then moving out. 6 year rule should apply to the whole property.

    I think moving in straight away would be the way to go. But if you later move out and construct a GF this couldn't be exempt from CGT.

    If you move back in and then build a GF to rent this make the property subject to CGT.
     
    Peter P likes this.
  8. Barny

    Barny Well-Known Member

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    @Terry_w and @Paul@PFI

    What if you already have a ppor, buy a house which now has to be classified an investment property as you already have ppor which you aren't selling, and stays vacant forever.(hypothetical)

    You choose to live in the main residence of this investment property you buy as your new place, as you love the location.
    Build a granny flat/cabin to rent out on weekends without subdividing. Build cost 60k for the granny flat/cabin, can rent it out for say 200 per week. 10k a year.

    What can you claim?
    Only the 60k to build the granny flat/cabin to generate 10k?

    The whole place is considered an investment property but if you live in the main residence you can't claim the whole mortgage. Can you claim any part of the mortgage?
    Hope that's not confusing.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    you can't claim the $60k as this is a capital expense.
    But you might be able to claim the interest on any loan used to construct this GF depending on the circumstances.
     
  10. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    I bought my PPOR, lived in it for a while whilst renovating, rented it out for a while whilst travelling. Now I am subdividing the back and building a new home.

    My plan is to then move into the back and sell the front, avoiding any CGT. (As far as I'm aware!?)
     
  11. Barny

    Barny Well-Known Member

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    So you can claim the interest on 60k. 60k X (4% interest for example) =2400 per year, claimable per year.

    If you sell the house, Say you bought it for 500k, then build the granny flat/cabin for 60k, do you add the 60k to the 500 which gives you a base of 560k as capital expense?
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    capital costs can form part of the cost base so can other expenses not otherwise claimed
     
    Barny likes this.
  13. noone

    noone Member

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    What if you subdivide and build a new dwelling for rent at the back of ppor and keep them on one title?

    Interests of construction costs and other expenses are deductible and when you sell them both at the same time as one property, will both dwellings be exempt from CGT?
     
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    I'm lost. How can a PPOR be an investment property and also be vacant.
     
  15. Barny

    Barny Well-Known Member

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    I was trying to give an example if you already had a ppor but not living in it.
    Buying another which would be classified as an investment property as you still have the ppor. Ppor Vacant or not doesn't matter.
     
  16. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Seems illogical to not pursue income. Why buy another property to obtain income when you dont rent the former home ?
     
  17. Barny

    Barny Well-Known Member

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    There's a couple reasons why I wouldn't.

    I just wanted to find out about claimable expenses if you choose to live in an investment property, then generate income other than leasing the main dwelling out. All good though, Terry provided the feedback, cheers
     
  18. dabbler

    dabbler Well-Known Member

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    This is something I am interested in as well, as if councill allows this or multiple dwellings, I may do this.

    For me, would have to decide if it will be just a PPOR....or if there is no real advantage, rent it out first till moving is more convenient.

    I would think what you bought the PPOR for originally would be the base for no CGT, you would have to pay some CGT if you have a rental that has had income, same sort of thing as running a business from home or renting out part of the home.