I've been researching some previous threads in this forum but nothing I've seen falls exactly within my query so thought to start a new one. The strategy is this: 1. Purchased house (renovator) intended for PPOR 2. Rent house for first 12 months to assist with initial mortgage repayments and accruing additional income for renovations 3. Comprehensively plan renovation towards the end of the lease so can be executed quickly 4. Renovate house with nobody occupying the property, move in as PPOR once complete 5. Hold PPOR for the long term (let's say 10 years) before considering a sale, idea would be to rent property again if it is not staying as PPOR The purpose of renting before moving into a PPOR to assist with servicing a loan, getting a good chunk of repayments in during the 12 months. But I need to consider the potential tax implications of the strategy so I can decide whether renting for a year makes good financial sense. As I understand, I will need to pay capital gains tax on 1/10 of the increase in value from the purchase price to the sale price (if we assume a sale at 10 years from purchase with 1 year as rental). Then there is a 50% deduction applied to that 1/10th calculation from holding the property for more than 12 months. Valuing the house from time it is rented until time it becomes PPOR is not acceptable for calculating the CGT for the rental year when the property is first treated as IP. I could move in, move out, rent for 12 months and rely on the 6 year rule, but moving in and out is a hassle and not really keen on that path. Plus, I want to enjoy my renovated PPOR as soon as possible. I'm also confused as to whether the time used to execute the renovations (with nobody occupying the property, but before I move in) is added to the time calculation for CGT? Basically, I am wondering if there are any specific tax or accounting considerations I should keep in mind for this strategy? Hoping my understanding above is correct. I'm guessing the laws on the CGT discount could change by the time I sell my house, so the 50% deduction could become much less in 10 years. Appreciate any assistance!
Don't forget your costbase can include all costs for interest, rates etc for the 9 years you are living in the property. So the CGT could be very low
The OP question is far too broad for hypothetical tax opinion other than one which seeks to save tax and then its really very subjective. Best guide would be personal advice ..or its just a punt
A recent tax case to AAT used a 9 year period and was considered to not be a CGTissue. Intention at day #1 is quite relevant. Many factors influence. I would get a personal view and advice. Just as intnetion at day 1 is important any changes can also impact
Thanks for the replies. I know anything from this forum doesn't substitute for specific advice so I will be seeking that, I just wanted to get an idea of how smart or silly the strategy is in a broad sense before going to the effort. Paul@FPI, happy to offer any information you need to provide any assistance! Any ideas on whether time spent renovating (no tenant) before moving in is counted towards the timeframe for calculating CGT?
