Moving into investment property

Discussion in 'Accounting & Tax' started by j4mesa, 14th May, 2019.

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  1. j4mesa

    j4mesa Active Member

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    Hi all,

    Seeking your thoughts/ opinion regarding the scenario below :

    - Purchase investment property in March 2016 for 550k and rent it out until March 2019
    - Move in as PPOR in March 2019 - didn't do the property valuation at that time but the approximate value of 500k at that time ( so the price has gone backwards by approx 50k)
    - Current website valuation is still about 500k

    Questions that I am seeking thoughts/opinion :

    1. If I order a property valuation now ( say 500k in value) and sell it in March 2021 for 600k, how will the CGT be calculated?

    ie. will there be any CGT payable or is it simply a time-based calculation and if we rent out for 3 years and live in for 2 years and sell we would only pay 60% of CGT for the first 3 years that the property was rented?


    2. Is it too late for me to do that property valuation now I have lived in there for 2 months? The property market has not changed much between Mar-May 2019.

    3. What kind of property valuation is acceptable to prove the property price at this moment? ie. is desktop/website valuation sufficient or does it have to be a professional full-blown valuation

    Thank you for your thoughts/opinion
     
  2. Marg4000

    Marg4000 Well-Known Member

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    As I understand it, since it was first an IP, cgt will be calculated on a time basis.
    Marg
     
  3. wylie

    wylie Moderator Staff Member

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    My understanding is that if it was an investment first, then any time you have lived in it as PPOR is apportioned by time and you won't need a valuation.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    a valuation is unnecessary and can't be used for CGT purposes
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You lived in it for 2 years out of 5? If so 3/5ths of any capital gain will be taxable. But the cost base expenses you incurred while living there can be used to reduce this gain and then the 50% discount can reduce it some more.
     
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  6. j4mesa

    j4mesa Active Member

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    thank you all for your explanation.

    @Terry_w : with cost base expenses, are you referring to any of the below criteria?
    • rates
    • insurance
    • land tax
    • maintenance costs
    • interest on money you borrowed to buy or improve the property.
    According to
    Calculating the cost base for real estate

    which means that the loan interest, etc i paid during my time of PPOR can be included as cost base?
     
  7. j4mesa

    j4mesa Active Member

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    50% of the CGT discounts applied to 3/5ths of any capital gains , that would mean only the 1.5 / 5 of the capital gain will be taxable right ?
     
  8. j4mesa

    j4mesa Active Member

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  9. Marg4000

    Marg4000 Well-Known Member

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    Those answers are wrong. Valuation only comes into play if you convert a PPOR to an IP, then the cost base is adjusted to the time it FIRST becomes an IP.

    If a property is an IP first, then any cgt is calculated on a time basis. It’s not optional, it is the tax law.

    Consult an accountant skilled in property investments.
    Marg
     
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  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    yes
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There can be strategies to using s118-192 or NOT USING s118-192 if you are not permitted to use it. Many posts suggest s118-192 is mandatory but it is only mandatory for a property that meets both the following key conditions

    1. It has always been occupied and used as the main residence as soon as practicable after acquisition and only now is FIRST used to produce rent ; and
    2. The home has never been a place of business for even a single day OR produced any income even while used as a main residence.

    eg Example 1 :Mary & Fred are going on holidays and list their home on a homestay site. They receive 2 weeks rent at the same time the property remains their main residence.
    Example 2 : Stuart ran a lawn mowing business from home while unemployed for six weeks.
    In each case s118-192 is not available.
    Eaxmple 3 : Bill has a home acquired in 1996 and used as home until 2002. In 2002 the home first prduced rent and s118-192 is used. He moved back in 2003 and now seeks to move out. He cannot use s118-192 again.
    All the above cannot use s118-192 (Market valuation)
     
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  13. j4mesa

    j4mesa Active Member

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  14. datto

    datto Well-Known Member

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    Huh? What investment property? I don't recall owning any investment property. My memory must be playing tricks if I did have one. Ahh that was years ago. Look at my tax record, clean as a whistle. I never purposely evade tax.