Buying PPOR with Granny Flat

Hi

I am looking at purchasing a PPOR that we are planning to live for the next 5 years, one of the property that I'm interested in has a granny flat with tenants currently in place.

With projection of upgrading after 5 or so years, how is CGT calculated assuming we keep the current tenants?

Would it be best to vacate the tenants to be completely exempt from cgt?

Thanks

 

CGT would apply to the area of the land immediately under the GF and the land assigned and separated from the main residence. Technically there wont be a gain on the structure. There would also be a balancing adjustment for the structure based on any Div 43 claimed during the time its owned and tenanted. This may add back all the Div 43 claimed.

You may be claiming a % share of the rates, water, interest and other costs based on reasonable apportionment etc as a deduction against rent. Its possible a CGT gain could occor in the future and I wouldn't stop using the property to produce income for concerns about CGT alone. CGT may only tax 50% of the total gain and then thats split for each owner and subject to marginal tax rates etc.

 

So using rough numbers for example:

On a 800m2 property where 200m2 is allocated to the GF.

Bought for 1m in 2019, and sold for 1.2m in 2024. Under a single owner.

200k CG over the 5 years. 25% of the land component for income producing, so 50k. Then 50% discount. So 25k is up for CGT.

At a 37% marginal tax rate. CGT payable of $9250. Do I have the calculations right?

 

Those are not the correct calculations. You have two CGT assets on the site.

1. A house and land
2. A GF and land. The GF is at best just a fiture & fitting subject to Div 40 adjustment (minor) and Div 43.

How do you apportion this and therefore the original cost ? You get a valuer. They will need to know the complete cost, duty and legals etc all included and will apportion this into the two assets.

 

Ok, Thanks Paul

If we vacate the tenants and decide to use the GF for own use. Upon selling, are both assets exempt from CGT, or because they're two assets, only one is declared main residence?

 

If the GF is on the same lot and is actually available for use by yourselves as part of the main residence its tax exempt with the house. This happens with tennis courts and pools, garages etc on larger lots. A main residence can be on several lots or titles providing the adjoining rule is met and is less than 2Ha total

The main residence exemption only applies to the extent of the "main residence". You can live in the GF and the house where they are adjacent and its 100% exempt. (s118-120) But you cant live in the GF and the house is exempt if it produced income. Or vice versa because of : to the extent that the land was used primarily for private or domestic purposes in association with the dwelling. So the use of each dwelling and adjacent land is a further limb to the exemption test