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Marriage and PPOR, Depreciation, 6 year rule and property valuations

Discussion in 'Accounting & Tax' started by kkit, 4th Jan, 2016.

  1. kkit

    kkit New Member

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    NSW
    Just doing some research about some tax rules and thought i would post my questions here:

    Scenario: Me and my partner, both purchased a property each three years ago (lets name them Property A and Property B) and lived in them for one year separately before moving back to our respective parents homes. Both properties started earning income when we each moved out, but both have been earning income for only 2 years. Because of this we are treating both properties as our individual PPORs, as we are not married and not living together. We are also claiming depreciation and the interest deductions on the loans for both properties individually.

    After we get married early this year, i am tossing up between two options. 1) Both move into Property A, or 2) Rent a property to live in. The problem with the first option is that Property A has a decent depreciation schedule as it is relatively new, and gives me a decent tax return. Financially, option 2 seems to be the smarter option, as i still can claim depreciation and interest for another 4 years on Property A and B.

    Q1a) If we decide to sell either Property A or B, say in 4 years time from when we get married, is it true that we can choose which property would be our PPOR? If so, then...
    Q1b) What is the cost base of the properties if we chose option 1? Is the cost base the value of the properties when they first started earning income or does it reset to the value of the property when we got married?
    Q1c) What is the cost base of the properties if we chose option 2?

    Q2a) Similarly, if we decide to sell either Property A or B, say in 8 years time from when we get married, is it true that we can choose which property would be our PPOR for the whole 8 year period? Or would we be forced to choose either property A or B; one to be the PPOR and one to be our IP after 6 years of earning income? Or, are there different answers for the two options?
    Q2b) What is the cost base of the properties if we chose option 1 or 2?

    Q3) If we chose option 1, can we still can claim depreciation and interest for Property A and B, or only for Property B?

    Q4) Similarly, if we chose option 2, can we still claim depreciation and interest for Property A and B?

    Q5a) What does the ATO accept as an acceptable property valuation? Can you use recent sales of identical properties as a guide? Can you use reports like RP data reports? Can you use reports or letters from real estate agents? Or does it have to come from a qualified valuer?
    Q5b) What happens in the case where you need to get the value of a property from a few years back? What can you do?

    Hopefully i explained the scenarios and options and questions clearly.

    Thanks in Advance!
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Are you spouses?

    Have a look at s118-170 ITAA1997 and s118-145 and s118-190.
     
  3. kkit

    kkit New Member

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    No as we have never lived together, but we will be once we get married early this year.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Co-habitation is not necessary to be classed as 'spouses'.
     
  5. Vanillascent

    Vanillascent Well-Known Member

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    I was actually thinking about this the other day. It was the law/tax nerd in me. Hypothetically I imagine if you didn't know each other for example when you bought the properties and separately rented them as you have say at the 3 year mark of the 6 year rule. I imagine one property would be the actual PPOR of the couple and the other would just be prorata PPOR with the key percentage using the point in time that the couple became "spouses". That would be a tough one because the point at which the couple became "spouses" is subjective depending on facts as most relationships are a gradual progression. It's not like an estate claim where the court just looks at at the point of death to determine whether the couple were spouses. At least that scenario has a point in time to use as a reference point. Interested to hear what other thoughts.
     
  6. dabbler

    dabbler Well-Known Member

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    I do not know the answer, but as an outsider reading what you write, you both seem to know what your doing exactly, yet trying to say your not a couple to avoid something.

    Why not go and see someone who will do both your taxes now ?