CGT 6 Year rule - once 6 years passes

Discussion in 'Accounting & Tax' started by ADR01, 24th Feb, 2021.

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  1. ADR01

    ADR01 New Member

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    Hi Everyone

    Juts wanted help on what I hope is a simple question.

    2009 Bought unit & moved in straight away

    2009-2011 Unit was PPOR

    2012 - Moved out, Unit became an IP and we bought a new PPOR 1 year later (rented in between).

    2021 - Sold unit

    My question is we have obviously exceeded the 6 years max as an IP before selling (IP for 9 years), Apart from the initial 50% CGT reduction, do we have to pay CGT on the full gain over 9 years or only 3 years (ie. first 6 years is 0 CGT)?

    I think the latter definitely used to be the case but not sure if the rules changed in the last few years?

    Many thanks
     
  2. Trainee

    Trainee Well-Known Member

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    How do you want to treat your new ppor in terms of cgt?
     
  3. Terry_w

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

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  4. Paul@PAS

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

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    The maximim period of absence is 6 years. Assuming you can and do claim this then the total gain is apportioned based on days. Not change in value etc.

    1. s118-192 will RESET the costbase to market value at the 2012 date. This is often missed. This will lock in the time when you were resident in home. This seems the issue that is confusing you.
    2. Total days 2012 - 2021 sale ?
    3. Exempt days = 6 years from date in 1. (2192 days)
    4. Calculate total gain based on 1 and selling costs etc

    Apportion total gain for exempt and taxable days

    Taxable value / 2 is suually the assessable value. However if you have other losees these are applied first THEN the net amount is discounted.
     
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  5. ADR01

    ADR01 New Member

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    Good question ! After reading Terry's detailed Tax Tip 109 below - am I correct in thinking I can use the 6 years on the IP to pay no CGT but then I would be liable for 6 years of CGT when I sell my current PPOR?

    Note - planning to keep PPOR at least another 10 years but may move/sell before retirement
     
  6. Paul@PAS

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

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    The choice of exemption is something to consider when the first of any property is sold. The choice may or may not have limitations eg
    - You cant choose exemption if you never started to reside. The IP cant use the absence exemption if it wasnt your main residence and then you departed. The choice does not apply just because you own it.
    - Which property should be exempt ? There may be a period of time when both are potentially exempt too
    - What is the impact of s118-192 which resets the costbase for a property that has always been your home ?
    - Do you understand third element costs and how this can also reduce a gain ?


    Sometimes a taxpayer may have a choice. However a small CGT tax issue today to avoid a deferred much larger one may be a better choice. eg

    John Symonds of Kiwi Home loans owns a Parramatta unit. It is his home. On the same day he bought that unit he also bought a block at Pt Piper. He then builds a new harbourside dwelling that takes 45 months to buildbefore he moved in. His tax adviser suggests he NOT claim or consider the Parramatta unit as his main residence despite actually living there as the gain may be trivial. He warns John that a taxpayer can only ever have one exempt dwelling and explains why the choice is important. The ability to treat his harbour home as exempt for the 45mths it took to build is far more valuable. The 3rd element costs of owning the Parramatta unit amount to $68,000 over that same time.

    Parramatta unit gain in 45mths = $75,000 less 3rd element costs $68K = $3,500 taxable.
    Pt Piper home gain in same 45mths = $23million. tax exempt through choice. All John had to do was move in as soon as possible after the build completed and stay there at least 3 months. Which he did.
     
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