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Changing PPOR

Discussion in 'Accounting & Tax' started by george, 1st Aug, 2016.

  1. george

    george Member

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    I am new to the forum. Greatly appreciate if you could advise me with the best option.

    We currently have a PPOR in the Sydney upper north shore – Bought for 475K in 2007 valued 1000K now. I have approximately 200K outstanding loan against this property. I and my spouse have 50-50% share in this property. My income is $125K and my spouse is not working currently. We also have two school going kids.

    I bought a land in the booming south west Sydney area for $300K in 2014 and owner built a house for $300K. This house is valued $850K now. Construction of the house just completed. I have 100% ownership of this property.

    Initially I was thinking to rent the Sydney west property but with unexpected sudden boom, what is best option available for me to secure the capital growth. I am prepared to move to the new house for a short period of time to make the house as my PPOR if that will help me to secure the capital growth. Sydney south west is far from my work so long term it might be difficult for me to commute to work.

    I prefer to hold the Sydney Northshore property for the long term. We have a very small old house there and intending to rebuild if finance adds up.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you think there will be further growth the best option would be to buy up as many properties as you can and to structure the ownership and borrowings in the most efficient way possible.
     
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  3. george

    george Member

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    Thanks Terry. I doubt whether there would be further capital growth in the Sydney South west in the near future as there lot of lands for sale now.

    Since I have around $250K capital growth in the new property, this is what I have in my mind.

    1. Relocate immediately to the new house for 3-6months and make it as my PPOR .
    2. Keep my current PPOR property unoccupied for 3-6months. I thought of renting it out but not seeing much benefit.
    3. Sell the new house as my PPOR and relocate back to my old property. I think I don’t have to pay CGT for this sale as the new property is my PPOR.
    4. Should I have to pay any CGT for the old property when I eventually sell it if the period of absence is less than 6 months? Anyway I am not expecting much growth in the next 6 months. I will do a valuation just before moving out and just after coming back.
    5. Using the profit of the sale invest in other bargains.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Some issues
    1. The new build would have a cost base of what it cost to acquire and build and CGT law permits you to reside in it and the gain could be exempt moving forward. CGT law permits a HOME to be exempt backdated to the date acquired in the situation it is newly built and occupied as soon as practicable. Then you must reside at least three months !!
    2. The former residence would be exempt up to time of 1.
    3. You can have only one PPOR - Either 1 or 2. Generally that choice (if there is one) may be determined by which is sold first. However a cycstal ball is needed to determine which property would produce the highest capital gain that could be exempt from CGT.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  6. george

    george Member

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    Paul, Appreciated for this piece of information.

    The land exchange date is June 2014. If I move to the new home and sell it after 3 months, will CGT be applicable for the old house from June 2014 until the sale date?
    What will be the cost base if I rent the new house after living there 3 months? A valuation of the house would suffice?
    I have a plan of demolishing the old house and rebuild it. To make the old property as my PPOR again, should I have to come back and live there 3 months before demolishing it? If I start the process while I am living in the new house does it make any difference?
     
  7. samiam

    samiam Well-Known Member

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    Do you really need to sell? If not, why don't you consider pulling equity out and buy a couple more??
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You have a bit of everything in this question.

    if you live in the new house after completion you could claim it as the main residence from the date of purchase. But that will mean the other house is not the main residence for the overlapping period. The other house appears not to be income producing so the valuation method won't be used. it will be worked out on the basis of time the main residence v not and the CG apportions to exempt v not exempt.

    If you then demolish that house you have other issues to consider
     
  9. george

    george Member

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    I don't have to sell. But I am really worried about the actual depreciation to the new home if I rent. Unfortunately the new home have very good inclusions. It's a property really to live or sell.
     
  10. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    You probably mean damage rather than depreciation... depreciation will actually be fantastic for your taxes....

    I think pull out equity and look to buy, but maybe in another capital city. That's if you think the south west property will hold its value. If not, then sell it. You were very lucky with Sydney but if you rinse and repeat what you just did, I think your luck may just run out sooner or later. You don't control the market and you might have a big CGT event.
    Best to have a bigger portfolio, your LVR is fine. If you have a bigger portfolio and they all grow by even just say 3%pa, it will have the potential to grow into something huge. You currently have a great base to build something big from.
     
  11. george

    george Member

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    You are giving me great inspiration. Thank you. But is it better to convert the new home as my PPOR before renting out? ie, Live there 3 months, do a valuation, depreciation schedule and then rent it out?
     
  12. S0805

    S0805 Well-Known Member

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    My 2 cents, It makes sense to move into newly completed home in SW. In that way you would have more option than renting from day1. I will say even rent your north shore place while you living in SW. why loose income for those months. I would live for a year in new PPOR at least ( subject to personal situation) rather than just 3 months. Once you move out of old PPOR, get valuation done by agent (higher the better), rent the old PPOR for yearly lease, within year move back in, get the valuation done (safe side), live your rest of the years there. Using 6 year exemption rule you have 6 years from the time you moved back into your old PPOR to sell your SW property CGT free using main residence exemption. do the numbers (whenever you decide to sell) and see if the deal stacks up....key thing is you get to select which is your main residence only when you sell.

    Please note if you do above, you'll loose the main residence exemption for those 6 yrs which you claiming SW property be to your residence in your old PPOR hence liable for CGT. But if you die in this property or hold it for 20 more years that will not be much...Terry_W has written excellent tip around it just read it....

    experts here pls correct me if my above understanding is incorrect....Not advise....
     
  13. S0805

    S0805 Well-Known Member

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    also, let's look at the numbers if you decide to sell..you have 200K owned to your current PPOR. If you sell the SW property and make 250K profit, assume it excludes CGT but includes transnational costs let say you have at least net profit of 200K. you can use that money to pay off your current PPOR. I prefer to put it in offset rather than pay off. depending on what rate you are paying, assume its 4.25%...that is 4.25% income after tax dollars.

    While all this is happening you can plan your next move whatever it is next IP purchase or shares purchase. You can always refinance your existing PPOR loan (while it is being demolished/renovated) and use part of that to invest further.

    Not advise....
     
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    I dont give personal advice on PC sorry
     
  15. Stoffo

    Stoffo Well-Known Member

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    Probably a good question for TERRY...........

    If George moves into the SW property for 6-12 months whilst the UNS property is demolished and rebuilt, then moves back selling the SW property, how does this affect the CGT question ????

    (seeing as how the Upper North Shore property would not be habitable until a certificate of occupancy is issued, and neither property would have been rented)
     
  16. Azazel

    Azazel Well-Known Member

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    Dear @Paul@PFI , I'm having some troubles at home because my spouse is working late...
     
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  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Impossible to say now. But if you structure it so that either could be the main residence you will have some degree of flexibility later.
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Uns could potentially be sold cgt free
     
  19. george

    george Member

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    Would NSW land tax be payable for the NS property if on 31st Dec SW is the PPOR? Assuming land values : NS – 700K. SW – 250K. How does it work out for change over?
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In NSW PPORs are exempt from land tax.

    But you have to plan this into your strategy because there are different absence rules for land tax compared to the income tax side