Can Two Properties be Your Main Residence ?

Discussion in 'Accounting & Tax' started by Mike A, 28th Jun, 2020.

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  1. Mike A

    Mike A Well-Known Member

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    A few questions you will need to ask yourself

    1. Have you purchased a property that will become your main residence and you currently have a property that is treated as your main residence ?

    2. Has the property that is currently being treated as your main residence been your main residence for at least 3 months in the 12 month period before it will end ?

    3. During that 12 month period was that property not your main residence for any period of time ?

    4. During that time was it rented out ?

    The answers to these questions will help determine whether you can two main residence at the same time
     
  2. Harry30

    Harry30 Well-Known Member

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    I am still a bit confused. Take this example.

    You ordinarily reside in Melbourne.

    Job takes off, and you start commuting to Sydney each week, spending Monday to Thursday working in Sydney. Wife and kids come with you and spend the 4 days in Sydney.

    On Friday, you fly back to Melbourne and spend the weekend in Melbourne. You repeat this every week.

    With the regular travel, you are sick of staying in Sydney hotels, so you purchase a pied-a-terre (in the Toaster no less) for the 4 days you are up in the Emerald City.

    After 5 years, you burn out, and quit corporate life. You sell both Melbourne and Sydney properties and move to Byron Bay.

    Can both the Sydney and Melbourne properties be your main residence and hence be CGT free?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No
     
  4. Harry30

    Harry30 Well-Known Member

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    Let’s say the wife stays in Melbourne.

    Husband does 4 days a week in Sydney.

    Can you then have 2 main residences?
     
  5. Archaon

    Archaon Well-Known Member

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    No, the owner would have to choose which residence is the main residence (with tax advice), the other will be subject to CGT for the time frame that it was not the main residence and not only that, the family would actually have to establish the Sydney property as their residence, drivers license, registering to vote etc, it isn't as simple as just saying that one has more CGT, so it's the main residence.

    The hint is in the name 'Main' residence, you can have multiple residences, but only one can be your main.
     
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  6. Harry30

    Harry30 Well-Known Member

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    Thanks. Makes sense.

    So, in my example, where you arguably have a choice as to which is your main residence, the taxpayer will naturally look to which property achieves the lowest overall tax payable.

    In that regard, will a consideration be the amount of debt on each property. Assume Melbourne property is tax free, but Sydney property is highly geared. Assume also that neither property has been rented.

    Other things being equal, you would err on the side of declaring the Sydney property as your main residence as the interest cost during the holding period would form part of the capital cost for the purpose of calculating CGT.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Either could potentially be the main residence but not both at the same time for the cgt exemption
     
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  8. Harry30

    Harry30 Well-Known Member

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    Another related question.

    If you live in property A and then move out into property B, rent property A out for the next 6 years, and then sell it, it is potentially free of CGT given application of the 6 year rule.

    At the same time as you sell property A, you also sell property B which you have been living in for the last 6 years.

    If you nominate property A as your main residence (using 6 year rule), you will be subject to CGT on property B for that 6 years (ie. you can only claim one residence, in this case, property A).

    So, in calculating CGT on property B (for that 6 years), what expenses will you generally take into account. Obviously, you would include Purchase price, stamp duty, etc.

    Assume you would also include interest costs?

    What about council and water rates over that 6 year period?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes all cost base expenses while living there including interest, rates, building insurance etc
     
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  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Water rates are not third element CGT costs. Water charges are for consumtion and sewer services. One of the most overlooked 3rd element CGT costs can be general maintenance incl repairs, garden and lawns, painting etc

    Care must be taken with third element costs
    1. Cant create a loss
    2. Evidence
    3. Cant be prior to a s118-192 event (ie the costbase reset)
     
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  11. Harry30

    Harry30 Well-Known Member

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    Thanks Paul.
     
  12. craigc

    craigc Well-Known Member

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    I know this is hypothetical but if you have a higher cost base on Sydney property due to interest costs etc,
    then all other things being equal (As you said) you would make Melb your main residence as it will have a higher potential taxable gain not Sydney as it has a higher cost base.
    I have assumed your comment was
    meant to be Melb is debt free not tax free.
     
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  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You cant "make" your property a main residence if it in another city. However if both were eligible you could choose which is exempt, if BOTH are eligible. The absence rule may limit one of them. A higher costbase does not make a bigger gain. I have seen people with a CGT loss on one and a gain on the other. This would be a more compelling reason to consider which to treat as exempt.

    The most likley trigger for making that decision is the sale of one and taxpayer often (but not always) choose the one first sold. In some instances claculation of the apparent choice may mean the other is best used. Its one of those things we often do and is just part of a client tax advice services. I often find that clients ask me to confirm what they thinjk the gain is and its wrong. Often s118-192 resets a costbase and this is ignored as may the reduced costbase of a IP.
     
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  14. Harry30

    Harry30 Well-Known Member

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    Correct. Thanks. Had a brain fade.
     
  15. Redwing

    Redwing Well-Known Member

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    @Mike A , @Terry_w , @Paul@PFI

    How about PPoR

    You purchase a PPoR and live in it for 2-3 years, move out and rent it out, you also rent yourself for the next 10-12 years and then move back into the original PPoR complete a renovation and later sell; how does this affect you as a PPoR/IP
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    PPOR is no longer the term. Its main residence under tax legislation and if you are absent for longer than 6 years you would need to apportion.

    Tax Tip 109: CGT and Being absent from the main residence for more than 6 years Tax Tip 109: CGT and Being absent from the main residence for more than 6 years
     
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  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    1. s118-192 costbase reset on date it first produces income and then
    2. Proprata the bgain resleative to s118-192 costbase and subsequent changes less QS deductions vs sale and...... apportion that gain for 6years of days exempt and balance of days taxable
     

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