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Move into property initially or rent it out ?

Discussion in 'Accounting & Tax' started by menty, 29th Jul, 2016.

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  1. menty

    menty Well-Known Member

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    Im trying to do some numbers to see which option is better and I keep getting confused.
    I bought property A approx 5 years ago and moved into it initially, lived in it for a year and rented it out till now . I was planning on moving into this property so I can reset the 6 year rule (which I have another year to do )

    I have now bought property B and it has been vacant for 3 months. I will probably sell this property within 6 years. Is it better to move into property B for another 3 to 6 months and then move into property A as PPOR, or simply rent out property B and move into property A (then Cgt will be paid for the sale of property B)

    Here are the numbers re property B
    Purchase price 390000
    Stamp duty 13060
    Renovation 30000 ( non deductible )
    Estimated sale price 500000 in approx 4 to 5 years time
    Interest per month approx $1600
    Potential rent income $1700 per month

    edit: it appears as though you can only declare one PPOR at one given time . I should just move into property A
     
    Last edited: 29th Jul, 2016
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If you "reside" in B then the Main Residence Exemption ends on A and starts on B. You cant pick and choose. The 6 year exemption has a condition you have met that ends it.

    The issues of fact may guide your CGT question.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    But if you live in both at different times the main residence exemption could apply to both, with you choosing which one on the sale of the first of them.

    But since you didn't live in the B property initially this may not be fully exempt.
     
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  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If the 6 year absence rule is intended to be applied a second time - Yes. Take care of dates with the requirement "within 6 years" based on the date you ceased to occupy. I have seen people get dates wrong or find a leasing date doesn't fit.
     
  5. S0805

    S0805 Well-Known Member

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    When you say this, do you mean property B has never been rented. If that's the case, you could still move in can't you. I don't think there is specific timeline on how quickly you need to move in 'reasonable' is the word...
    could this work: Move in property B now, stay there for year, move in property A, stay there, you could repeat these keeping 6 yrs in mind. It is only at the selling time you decide which one to claim as PPOR and 6 yr rule.....choose the property with higher CG.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    INCOME TAX ASSESSMENT ACT 1997 - SECT 118.135
    Moving into a dwelling
    If a * dwelling becomes your main residence by the time it was first practicable for you to move into it after you * acquired your * ownershipinterest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence.

    INCOME TAX ASSESSMENT ACT 1997 - SECT 118.135 Moving into a dwelling
     
  7. menty

    menty Well-Known Member

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    Property A has already made 500k. Property B 0. As I don't think property B will ever make this CG (or if so property A will go up by a similar if not more amount ) it's probably not a good idea
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Also the time factor. saving CGT now means you have more capital to invest.
     
  9. Journeyman

    Journeyman Member

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    From a pure accounting perspective, I suggest renting it out makes more sense. Unless you expect massive capital growth and want to minimise CGT. Questions would be do you have somewhere else to live a little or no cost? Will your cashflow support PPOR mortgage payments if rates rise. Would also depend on age of dwelling and depreciation available relative to your income and tax you pay?