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CGT on an IP that becomes our PPOR?

Discussion in 'Accounting & Tax' started by Valentino, 23rd Aug, 2016.

  1. Valentino

    Valentino Active Member

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    hi all


    We have seen a home we'd like to buy as a PPOR. However because it will be a large mortgage and it's quite far to our kids primary school, we'd like to rent it out first to Pay some down first. Then we would keep renting, it's cheap rent.

    Q. Wwhat are our CGT implications if we rent it out first, then live in it?

    And

    Would we get an IO loan or a P&I loan?

    Someone told me that if we rent it out first then CGT is calculated from when you first buy it, and even if you live in it for say 10 yrs, then once you move out and rent it out again, the CGT amount picks up from when you first rented it.

    That doesn't sound logical. Is it not that you pay tax just on the periods that it was an IP?

    Is there any financial/tax reason why it isn't a good idea to rent out a future PPOR first?

    Thanks
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    If you live in it from date of purchase, you can move out and make use of the 6 year rule and if you continue to do this, (resetting the 6 yr rule by moving back in before being rented for 6 years at a time), you could potentially pay no CGT on this property. This would not be the case if tenanted out initially.
    IO or P&I is up to you and your lender. Personally, I'd do IO for cash preservation.
     
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  3. S0805

    S0805 Well-Known Member

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    my understanding is same as @Propertunity moving in first will have more benefits then renting out straight away. I think you need to live in it for 3 months (from memory) after you move in to claim it as your residence..Gives you more options.

    not the advise....
     
  4. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    There is no set time you have to live in it. For example, you could move in today and tomorrow be told you have to relocate for work 1,000 kms away. So you pack up and leave tomorrow.
     
  5. S0805

    S0805 Well-Known Member

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    My understanding is you need to move in as soon as practically possible. Also if work is the reason for you to move out next day is different scenario. However the intent is to live in there and utilise the 6 yr CGT exemption rule i think there is some minimum months limit...3 months what i recalled :). accountants here may clarify
     
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  6. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Ive written a tax tip on this.

    Cht would be calculated on a % time rented out basis. But all interest and costs while living in it can be us3d to reduce the cgt payable
     
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  8. Ed Barton

    Ed Barton Well-Known Member

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    Wrong. No time limit. The place just needs to become the main residence/PPOR.

    However, three months is probably good to avoid a rubber gloving by the ATO. More important is evidence you can provide that it became your main residence, things like:
    • All bills sent there.
    • Changed addresses with govt departments.
    • Testimony of the neighbours that you lived there.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes there is no minimim time
     
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  10. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    I think you might be referring to the requirement to live in a new build for three months to be able to claim the main residence exemption from when you first acquired the vacant land.
     
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  11. Valentino

    Valentino Active Member

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    Thank you now I understand that may be what my friend was griping about! She could have had six years CGT free once they moved out but that six years they had to pay, coz for three months when they bought it they let the tenant stay on.
     
  12. S0805

    S0805 Well-Known Member

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    thanks. ^ that's what i think i got confused with. one more myth busted...:)
     
  13. Weaver

    Weaver Active Member

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  14. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    It would be on pro rata basis.

    If practicle move in for a short period and then go rent again.
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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