Hi there My wife and I bought two properties in 2017 and have lived in each of them each week almost 50/50 in that time. Neither has ever been used to generate an income. We have recently sold one of them and now live in the other and expect to do so for at least the next 5 years. For CGT I understand you can treat a former residence as your PPOR for CGT purposes, however, is there anyway to avoid CGT on the property we now live in (should we sell it in the future) without paying CGT on the property we have just sold? Many thanks Neil
both can't be exempt, but both could be CGT free potentially - one with the MR exemption and the other if the cost base expenses eat into all the gains so there is no 'profit'. If you have been living in both you would not have claimed any interest on the loans so this and other costs could be rather large (unless you had no loans!). The other way is to not sell and have the CGT disappear on your death, if it is your main residence at that point.
Hi Terry Thanks so much for taking the time to reply. I asked the same question on the ATO community site and got a slightly different view as per below - thoughts? I must admit I am finding it difficult to find something definitive on the ATO site. “In your case of not using your former home to produce income after you moved into your holiday home, you are able to treat the former home as your main residenceindefinitely. Now that it's sold, no CGT was payable on it, and you can now treat your holiday home as your primary residence. So if you sell it in the future no CGT will be payable on that property either.“ Regards Neil
As per @Terry_w or you can continue with you current approach and just hope not to get caught ! If you had not been married, but rather "dating" with no more life sharing than staying over at each others place occasionally (there's a limit to how many days a week IIRC), then you would each be able to claim the ppor exemption. One day for no apparent reason (other than increased return, claimables lodged or more likely the sale of 1 property) any time in a 7 year period a red flag may pop up in the system, upon investigation they will go back to your date of marriage (as a min) and so you both may be forced to choose which property you choose to nominate as ppor and get a BILL for the one that isn't........ Long ago now I bought a property to live in whilst I gutted (unlivable) and extended my 1st property as an owner builder (13months), after moving back to property 1 we allowed partners young son to remain in property 2 for a 4 months, due to circumstances beyond either of our control our (18 month) relationship ended (13 months actually living together) and so she went to live in property 2 (8 months), even though I was still providing more than enough financial support (she went and claimed rent assistance, insert RED FLAG for Govco) and bond for new rental property prior to sale with cash settlement, 18months later ATO made a ruling against me for the entire ownership period ........($30k bill + interest ), it's hard to argue with the ATO
There are many numpties who post to the ATO community forum and it is appallingly unreliable. I'm with Terry. Even the persons at the ATO who post get things wrong or are so brief in a reply its not helpful. And posts to those pages arent binding advice so they cant be relied upon. A holiday home may never satisfy the requirements of being a "main residence" despite it being the only property a taxpayer owns. The MRE doesnt work to exclude all other property so its exempt for the last one owned. Only a property occupied or previously occupied as a main residence can be exempt and then if absence rules are used you need records of dates too. Holidays homes will generally fail that requirement and be a temporary residence at best. The issue for the "two homes" rule is that the two taxpayers must agree which is exempt for each day in its onwership period. They cannot both have a exemption in full. There may be various calculations to perform to determine which choice is the best choice of those allowed. The costs of ownership for both properties should have been diligently recorded for all time for both properties as this will guide what each property costbase may be. This may be best guided by a tax adviser. The rule to check is not that of "changing residence" but the "spouses with different residences"..s118.170 ITAA97. That rule is often misunderstood by taxpayers and it is necessary to show BOTH residences are each a main residence of ONE spouse certainly for precise periods of time. That is harder than you think. Get it wrong and the ATO will cancel the MRE being claimed on review. Its not easily going to be $0. And even if it was it must be included in the return at Item 18 as a exemption being claimed. And if there are any kids then consider the dependents rule as well. Ownership and occupancy are each very different issues for the rules involved. It is necessary to demonstrate what each occupancy is and the dates and the actual type of use. eg If Hubby had a "work" home during the week it may not be a main residence at all.
Thank you Terry and thank you Paul. In terms of a cost base for the property I have sold and which I will choose to pay CGT, can I (for the period of ownership) include interest on the home loan, council rates, water rates and strata fees? Thanks Neil
Water rates includes the services charges ONLY, not consumtpion supply charges. Also add building (not contents) insurance. Dont overlook maintenance or costs of improvements you can substantiate either. Borrowing expenses etc. And consider any land tax if its assessed on sale as it wont likely meet the PPOR test either. The land tax clearance process will consider that. Most states consider a property exempt if all the family reside together. Not two. Something to raise with solicitor on sale.
Hi Paul The water bills only include fixed charges - a Water Service and Wastewater service, consumptions seems to not be metered across individual units. Thanks Neil
And just to clarify, when claiming a deduction for the strata fees, can I include both the admin fee and the capital works fees? Thanks again!
Time to seek and pay for legal advice(or pay attention in class) This has gone from selling a PPOR property, To holiday home, To a property that has never made any income, That only has fixed charges for each of the units, To deductions for strata management and capital works Go fish
And claiming deductions for a PPOR that is a holiday home.... The trifecta of tax problems. Tip : Seek personal tax advice since there is something wrong here.
Paul / stoffo I never mentioned holiday home, that came from Pauls first reply to my initial post. Maybe I am misunderstanding, and what you are implying is that it is considered or treated as a holiday home even though to my wife and I it is actually another residence that we inhabited equally with another residence? I started off that initial post with “I bought two properties in 2017 and have lived in each of them each week almost 50/50 in that time. Neither has ever been used to generate an income.” so Stoffo your comments about it going from this to that I think is a bit harsh. I posted looking for some guidance which I received and am thankful for. The subsequent posts were followups and clarifications. Sure, happy to pay for some expert advice but don’t make out I have changed my position from what I originally posted, it’s just more a case I have been given a lot more to consider by some of the helpful comments I received for which I am grateful.
This demnstrates nobody knows what your facts are and why I have indicated only personal tax advice would address this issue. A "main" residence is defined in tax law without a true definition. The general understanding of this expression is a person can have more than one residence BUT only one can be exempt ie that which is "main". The spouse rule if each had or have a seperate dwelling affects the main residence rule for both of them. The issue of living in both 50/50 is actually NOT a good thing. It means a far greater depth is required to determine which was the "main one"... Dont assume its a choice. If they are nearby to each other that alone is reason to seek very competent property tax advice. Many tax advisers think property must border another to be "adjacent". Thats not the case.
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