Capital Gains Tax PPOR rented out

Discussion in 'Accounting & Tax' started by Carol M, 7th May, 2020.

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  1. Carol M

    Carol M Well-Known Member

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    3rd Jun, 2018
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    Newcastle NSW
    Hi,
    After reading lots on CGT & PPOR am still confused. Yes I will be asking accountant. Meanwhile hoping brains trust can clarify a few things.

    1. PPOR was built by daughter and immediately lived in for 6 months. Then rented out for a few years while overseas. Then moved back in within 6 year period and lived there another year. Then rented out again for another 3 years until now.
    No valuation was done when first rented out, home was built on vacant land. We may have an agent's written appraisal from that time, but that is all.

    2. She plans to purchase new PPOR with partner in both names. As daughters PPOR is rented out now I assume the 6 month overlap rule does not apply. ATO site says she must have lived there for 3 months in past year, and not earned income from it either in that time. Is this correct?

    3. She hopes to sell her old PPOR in a year or 2 (or more). If it was sold before new PPOR purchase, it would satisfy 6 year rule re absences for full exemption of CGT.
    Although I did read somewhere that you need to move back in for 3 months before you sell it. This seems odd, if you sold within the exempt 6 year period surely it would still be exempt?

    4. When new PPOR is bought in joint names, is that the point at which old PPOR becomes an investment property and incurs CGT from then on?
    Can/should a valuation be done then to establish value?

    Am concerned reading about pro-rata days etc, that once she has a new PPOR she could be slugged CGT on old PPOR sale for the 2 periods that were exempt under the 6 year rule, ie from the very start it was rented out?
    If so, this seems unfair as it was her PPOR all those years and exempt - surely CGT is only liable on old PPOR from date it becomes an investment property (when she purchases new PPOR)??
    Hence need for a valuation at that time?
    Sorry, but it is very confusing.
    Any light you can shed is appreciated.
     
    Last edited: 7th May, 2020
  2. Terry_w

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

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    6 month overlap only applies where there will be a sale within 6 months
    If current main residence sold after the new main residence purchase it could still be 100% exempt

    Pay for some advice before you pay for a valuation as the valuation may not be needed.
     
    craigc likes this.
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    1. The former home may access the 6 year absence rule and be presently exempt. Valuation smay need to be obtained from a reg valuer for the time back then but possibly not too so dont rush. One downside to this is that if it occurs so soon aftre acquisition it can reset the costbase lower than the acquisition cost costbase but that is how s118-192 works. But that also may not be a concern if the property is 100% exempt

    2. You misunderstand the 6month rule.

    3. The new property and the former home wont both be eligible for the 6month rule as such. There is a spouse / partner rule that impacts the 6 month rule too. If the new acquisition occurs less than 6 months prior to the sale of the former property then there may be no concerns about that and the former home will be exempt without any impact on the new property either

    Yes of course obtain personal advice.
     
  4. Carol M

    Carol M Well-Known Member

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    Location:
    Newcastle NSW
    Gosh, I am even more confused now, sorry. Your last sentence implies "impact on the new property" is possible. Surely if the new one is their PPOR from purchase date, how can old ones sale have any impact on it at all (as it is then an investment property)?
    Does this relate to your concern that "costbase can be reset lower than acquisition costbase".

    Is it possible to elaborate a bit on how 118-192 works too? Trying really hard to get my head around the basics, so I know what questions to ask accountant.
    Thanks
     
  5. Terry_w

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

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    s118-192 = cost base reset at market value when first used to produce income
     
  6. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    A taxpayer can only have one exempt main residence for any day of their life. Excepting the limited use of the 6 month overlap rule. You dont actually have to live in a former exempt property but using the absence rule while the new home is owned would mean a choice as to which is exempt for overlap days may pose a issue. If the overlap was 7 months then its possible you can choose to leave the former residence exempt BUT it comes at a cost for the new home as it will never be 100% exempt for that 1 month. There could even be astrategy in making that choice. The partner / spouse rule also limits this too. That one month could be 50% exempt for the new home however.

    Never assume just because you live somewhere it is exempt