Buying a property under an investment loan, never renting it out, then moving in within 3 months.

Hey guys,

Not sure if this is a weird question, but what will my CGT position be if I were to do the following?
- Buy a property under an investment loan
- Never rent it out to anyone
- Move in within 3 months
- Change loan type to PPOR

Will I be subject to any CGT when I eventually go to sell (decades later)?

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Context: I'm looking to upsize and my dad insists I should buy before I sell. The bank suggested this route for the scenario where the settlement of my existing property ends up needing to be later than the settlement of the new property (no issues with settling on the deposit, just the borrowing capacity)

Thanks in advance for any help!

 

Is your dad a finance wizard, experienced property investor, lawyer, mortgage broker?

 

I suspect the advice you've received is because you can't service both loans unless one of them is an investment property. Your existing lender either isn't thinking laterally enough to make this work and/or doesn't offer bridging finance.

What you're proposing is effectively lying on your application. Not good.

I suspect you'd may zero CGT, or only a negligible amount (I really don't know), but you'd probably be better off consulting a broker to get a better solution. If the proposed solution works, there's almost certainly a better and more honest way to do this.

 

Is a bridging loan being considered?

 

You need to move into the property as soon as practical to qualify for the main residence exemption. Moving in within 3 months is not "as soon as practical". A valid reason for not moving in straight away after settlement could be that you were in hospital.

So CGT will apply to your instance as it was not a main residence straight away (3 months).

The loan type does not affect the tax position of the asset. What matters is if the asset becomes your home. The loan type can only point to evidence of what actually occurred later on.

Make sure you do not tell the bank something that is not true.

 

The 6 month overlap CGT exemption might have applied if you had moved into the new property asap and left the other vacant while it was selling. BOTH would be exempt for that period for up to 6months. But since you didnt move in you cant trigger it. Sometimes paying for early tax advice has its merits. Dad didnt share that much wisdom after all.

Of course the new proprty will then be subject to pro-rata CGT and all non-deductble ownership costs (3rd elemnt cgt costs) may eliminate any profit that is subject to a time apportionment. You just need to know to retain this info.