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Capital gains tax

Discussion in 'Accounting & Tax' started by Akw, 17th Jan, 2016.

  1. Akw

    Akw Member

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    Hi,

    I am currently renting in Sydney and have an IP renting in Brisbane with no liabilities. Our intention is to move back to Brisbane in a few years into the IP, ceasing the lease shortly before we can move in.

    If we then decide to sell the property (previously an IP but now our PPOR) at some stage, would we pay the full/partial amount of capital gains tax?

    Cheers
    Andy
     
  2. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    If it becomes your PPOR then CGT won't be applicable, as far as I'm aware. Ask an accountant for clarification :)
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If the property wasn't your main residence then it will be subject to CGT.
     
  4. datto

    datto Well-Known Member

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    See if the six year rule applies.....it's an escape route from cgt.
     
  5. Akw

    Akw Member

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    This is what I am confused about - is there a time frame that determines whether a property that has been changed from IP to PPOR is liable for capital gains tax?

    For example, as hypothetical scenarios:

    1) We had an IP for 3 years, moved in to become PPOR, decide to sell within 3 months...
    2) We had an IP for 3 years, moved in to become PPOR, decide to sell after 10+ years...


    EDIT - you must have posted your response as I was writing this datto - will check the 6yr rule, thanks.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1, Will be subject to CGT based on time 3/3.3 = about 90% of the CG will be taxed
    2. 3/13 subject to CGT

    In working out the gain some costs can be deducted and the 50% discount can be applied.

    If you had lived in it first totally different
     
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  7. datto

    datto Well-Known Member

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    My understanding is if a property was bought before 20/9/1985 it may be exempt from cgt. There may be exemption on inhereted property.

    Then there is an exmption under the six year rule. Say I buy a property, move in straight away and its my PPOR, live there for a short period of time and then due to work I move out somewhere and rent the original property out.

    Now if I move back in withinin six years then its cgt free. Thats my understanding but check eith a pro who can consider your situation.
     
  8. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    So this is what I wasn't aware of. I was in this scenario and didn't have to pay CGT however I never knew that you still had to pay CGT if it went from IP to PPOR.

    Always a wealth of knowledge @Terry_w
     
  9. Akw

    Akw Member

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    Thanks everyone, that makes sense...so in the case where an IP becomes my PPOR the amount of CGT I would need to pay when selling is relative to how long the property had been used as an IP vs PPOR.

    Terry and datto mentioned it's completely different if it were the other way around, ie. purchase a PPOR, lived in it, then use house as IP for rent and sell later (within the 6yr rent/IP rule) to be exempt from CGT.

    I just have 2 quick regarding the latter scenario being exempt from CGT:

    1) Is there a rule stating how long you must first live in the purchased PPOR property before you can convert it to an IP?

    2) Before selling the property (within the 6yr rent rule), would I need to move back to reside in it? This is in relation to dattos last post:

     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. No
    2. No
     
  11. Akw

    Akw Member

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    All in Australia
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If you have never lived in the Brisbane property then when it is sold the Cap Gain is apportioned between :
    1. Days owned
    2. Total days as your main residence (exempt).
    So the bulk of the ownership period would be taxable. This ratio is applied to the overall cap gain.

    so that 2. is exempt and the bulk of the days are subject to CGT. You cant turn off CGT retrospectively I'm afraid. The 6 year rule can only apply if the property was originally a PPOR then turns to an IP and you meet all the tests. Even then a different method occurs for working out the capital gain.

    And you should be aware that the ATO are just completing a major project that spans many years where they have captured property sales, leasing and other data and will send "please explain letters" to thousands for CGT and income tax issues about properties across the country. And to foreign owners. The days of CGT being ignored have ended. The ATO suspect there has been major CGT "avoidance" and are likely to test that claim soon.