Is my property a PPOR or IP?

Hi everyone,

I'm seeking clarifications/opinions on whether my property should be classed as a PPOR or IP. Background on my situation is as follows:

• Originally from Victoria, moved to South Australia for work. I'm still living in SA to date
  
• Built a house in Victoria a couple of years ago whilst working in SA, parents currently live in said property and charging no rent to them.
• Mortgage against the house is currently an investment loan.

I have had various accountants and family members give advice claiming that my property can classed as a PPOR yet all of my own personal research tells me that an investment property is what this should be. Can I please get opinions on whether this is a PPOR or IP so I can put this issue to bed?

 

Are you renting in SA?

 

Sorry, forgot to mention this! Yes I am

 

Did you live in Vic when you purchased and land and first started construction? Then had to move to SA for work? That might allow some discretion if the intention was for you to live in it but you had to move for work.

I would say it's an IP if you never lived in it when it was first constructed though. If you lived in it then moved out and didn't get another PPOR then it can be your PPOR for up to 6yrs.

 

I’m not an accountant but I believe if you aren’t charging market rent then you can’t claim any deductions anyway...

 

It’s an IP.

You say you were living and working in SA when you built a house in Victoria, so hard to see how it was ever your principal place of residence, which is what PPOR stands for.
Marg

 

I think it can be your PPOR as long as that is the only property you own and never ever claimed any rental deductions. May have to read the VIC Land Tax Act or seek private ruling

 

For what purpose? CGT if you sell? Or deductions?

Sounds like you never lived in it? So IP, but no deductions since your not charging rent. CGT payable if you sell but maybe be able to capitalise costs.

 

Classed by whom and for what purpose?

If you are not living there then it cannot be your main residence for CGT purposes. However if you have lived there then you could continue to treat it as the main residence for up to 6 years, if income producing, as long as you don't claim another residence during this time. If it is not income producing then you could claim it as the main residence indefinitely - provided certain requirements are met.

If you are talking about income tax, it doesn't matter what you call it. if it is not producing income expenses won't be deductible.

 

I've asked the question as I want to make sure that I've done everything correctly both now and for the future, e.g. having the mortgage on the correct loan type, understanding any CGT I could be liable for if the property is sold, deductions I could be making if I start charging rent now, etc.

@Westminster @Marg4000 This is my interpretation of the laws and regs as well and hence why the mortgage is structured this way.

@ttn @Terry_w This is the first time I've come across this statement regarding PPOR and no rental income/deductions. Can you please point me to where this is outlined, i.e. what the requirements are?

 

see section 8-1 ITAA97

 

Did you ever live in the property or not?

 

You dont know what you dont know. The loan type means nothing. Its what you used the loan for that matters.

 

No I haven't. Property was built and completed while I was working and living in SA.

So to clarify, the government/ATO aren't too concerned yet whether the property itself is an IP or PPOR (any deductions and CGT aside) and the banks just need to be informed of any changes to loan type, correct? And so how I use the loan will be something that I will need to think about and assess based on my own personal situation?

 

if you have never lived in the property it could not be your main residence for income/capital gains tax purposes. So the 6 year absence rule that I mentioned won't apply. Some people consider having family live in the property could class it as your main residence - but this is not what the law says, other than perhaps a dependant minor living there.

What you tell the bank is largely irrelevant for tax law purposes.

 

Most likely not a ppor. Have you claimed anything in your tax return for this property?

 

PPOR is a term used in state legislation - land tax and stamp duty etc.
Main residence is the term used in commonwealth income tax legislation.

A property may not be a main residence yet it could still be a PPOR!

 

No, I haven't claimed anything yet. This may change given that my property does indeed look like an IP

Ah yep, believe I may have mixed up those two terms there. Still, looks like my property is not my main residence nor my PPOR.

 

1. If you never lived it then no chance of it being a main residence.
2. If it's not an income producing asset then it's not an IP. Think of it as a holiday home with a mortgage.

I would get your parents to pay nominal "market" rent to you to make it an IP so all the associated expenses become tax deductible. You can always give that "rent" back to them in other forms like "helping" with groceries, paying bills etc

 

You cannot charge a “nominal rent” then claim all associated expenses.

If you wish to deduct all expenses, you must charge market rent, or close to it. Otherwise limits apply.
Marg