Mid 30s, Married, Kids and have hit serviceability wall

Yes, but the full exemption cannot apply to both.

 

1. Would this be conditional on the 6 year rule? I presume by 'possibly', that there are other conditions.

2. Noted. As it is being rented out and not being used as a main residence, I assume this is why CGT exemption does not apply? If she was to live in it and use it as her own residence, CGT exemption could possibly apply?

Noted. So in this scenario, if 1 property was to be sold as CGT exempt from main residence, does that mean the 2nd property will be subject to CGT, even if owner of property 1 moves into property 2 for multiple years after?

 

1. I don't know if the property qualifies based on what you have written. It could apply, and there would be consequences if it does.

2. yes

3. yes.

 

Dont do if. Just describe the scenario. Who does what when. You dont know enough about the rules to write a scenario that doesnt result in it depends.

either that or state what you want to achieve. Get the feeling you are trying to write a scenario where you keep two ppors exempt, which may not be possible.

 

Fair enough. Part of the learning process! In essence, I'm trying to work out in who's name should I place my PPOR purchase as to avoid potentially having CGT issues on both properties. Ex PPOR has had a good capital gain from 2013-18 so I want to prevent any CGT. I understand that I may need to pay partial CGT based on valuation at the time that it became a rented property though.

 

Basically I am holding onto PPOR 1 at the moment, it has been rented out for 9 months. Purchased at 650k, valued at about 900k so a good CGT gain.

Looking at buying PPOR 2 and wanting to understand CGT effects on PPOR 1. I may potentially sell PPOR 1 to free up some equity if need be. I am concerned that by buying PPOR 2, I may be forced to pay full CGT (less 50%) on PPOR 1, based off the original purchase price.

 

Check with your tax advisor how the 6 year rule applies here.

 

That is something you need specific legal advice on. There is more to it than CGT

 

Your previous post seemed to be on the right track but this shows some more research is required.
If (facts checked required) PPOR1 was eligible for main residence exemption from 2013-2018 then purchasing a new PPOR2 in 2020 won’t change this period. You need to ensure you are eligible for the main residence exemption however.

From the limited facts provided, potential main residence exemption from 2013-2018 - CGT exempt.
Rented from Feb 2019 onwards- cost base is reset at time first earned income.
If no main residence at the time, could potentially use 6 year absence rule from Feb 2019 onwards when first rented out. (If held longer, cgt calculated based on pro-rata of time from Feb 2019 value until sold date).
Note you can’t then claim 2 main residences apart from minor overlap, you can only choose one.
Many other items and facts to check ie residency, third element costs for CGT calcs so seek professional advice and check Terry’s tax tips.
Good luck!

 

I'm not sure where the confusion was RE: my explanation, perhaps just poor wording, however I will discuss with my accountant. I believe I am CGT exempt on PPOR1 as it was purchased in 2013 and lived in until end 2018. From Feb 2019, it started generating a rental income, so this should become the cost base for CGT going forward.

As I am looking at acquiring PPOR2, I understand I cannot claim 2 properties as main residence. From my understanding though, PPOR2 will become my main residence and PPOR1 will be subjected to CGT upon sale with a cost base defined from Feb 2019?

I'll definitely will continue to read Terry's tax tips!

 

You could be exempt on property 1.
You might be able to use the 6 year rule after it becomes rented. But this will mean you cannot count property 2 as the main residence during this period.

OR

You can just count property 1 up to the point it is rented and property 2 from purchase date.

You will need to work out which way results in the least amount of tax.

The good thing that only has to be decided when you first sell either 1 or 2.

 

Great. Thanks. That makes a lot of sense now! I was more concerned RE: tax implications of the second person. Good to know that it is only something to worry about later down the track.

 

how did u go with this

 

Good.

We purchased our new PPOR and got finance.

As everyone has alluded to, finding better ways to improve serviceability is the key to expanding the property portfolio.

RE: PPOR and CGT, it is a decision I can make further down the track depending on the capital growth of both properties.

RE: Finance, will work to pay down the non-deductible debt as quick I can. Once the dust settles with my new property and we're all running, I will revisit finance arrangements and review borrowing power.

Finance side, I was able to re-negotiate interest rates with the existing loans for now. It's not the ideal rate of < 3% but the low-doc arrangement makes it difficult. I will be in a much better position in a years time.

 

A perfect example of why having a detailed CGT record for EVERY property helps. Specific $$ values and dates are critical. At the time of selling or proposed sale the appropriate tax advice on the options (there may be more then one) can be considered.

Its something we give all clients free. EVERY property owner should maintain this vital information and review and update it it annually at tax time and when any specific issue changes.

Eg Peter buys a home and lives in it from 2010 to 2020. In March 2020 he commences to use the property for a home based business that uses the garage. He does that for three months then decides to rent it out and move to a bigger home as busienss is booming. Peter speaks to his tax adviser who then advises that his CGT exemption is now not 100%. And he cant use the rule in s118-192 to reset the costbase. And Peter learns that all his non-deductible private ownership costs from 2010 to 2020 add to his costbase. But he didnt keep records.

 

Hi Paul

Great advice mate. I plan on going back over the last 10 years and getting all that record keeping collated! I have it all available, which is good.

Cheers
Kevin