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PPOR CGT exemption, 6 months or 12months?

Discussion in 'Accounting & Tax' started by Cherrychan, 24th Feb, 2016.

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  1. Cherrychan

    Cherrychan Member

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    I have a quick question on CGT. I did a search but couldn't find a straight answer. Basically how long do you have to live in a PPOR from the day of purchase to be exempt from paying CGT? Is it six months straight, or 12 months?

    Thanks
     
  2. wylie

    wylie Moderator Staff Member

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    I'm not certain there is a black and white answer on timing regarding establishing a house as your main residence (unlike the time limits for the different categories of transfer duty), but I believe you need to move in, establish the house as your main residence, have services connected in your name, mail changed to the new address, all the things you do when you move into a new house.
     
  3. York

    York Finance Broker Business Member

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    What @wylie said. The act does not specify an exact time period. You need to prove that -
    • you and your family live in it
    • your personal belongings are in it
    • it is the address your mail is delivered to
    • it is your address on the electoral roll, and
    • services such as phone, gas and power are connected.
    The main residence exemption is not based on one factor alone, and the weight given to each varies depending on individual circumstances. The length of time you stay there and your intention in occupying it may also be relevant.
     
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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There is another thread t o this today.

    You have to continously live in a property for it to be exempt from cgt. An exception is the temporary absence rule s118-145
     
  5. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    As @wylie said, the States use a fixed period (e.g. the house needs to be your PPOR for 6 months to be eligible for the first home buyers grant). The CGT test is not as prescriptive so there is scope to argue for a shorter period. Your intention to make the house your PPOR is important.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Intention for CGT is irrelevant.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    You must occupy the property as soon as practicable after acquisition. Thereafter if it is continually occupied and exclusively a main residence (ie no room rented and no business use) then 100% exemption applies in almost all cases.

    If you move out there may be a continued exemption if the absence rule is satisfied but it comes with some conditions. Alternatively if you move out and move into a new main residence and sell the former home within 6 months there can be a exemption overlap so you can count the exemption towards both properties for that six months. But go over by one day and its all lost.

    The 100% exemption may be affected by a defacto partners "home" too. You cant both claim one each.
     
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  8. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    The mere intention for a house to become your main residence without actually living in it is not sufficient, but I wouldn't say that intention is irrelevant. The ATO lists it as one of the factors it looks at when in working out whether a dwelling is your main residence: Guide to capital gains tax 2014-15 | Australian Taxation Office.

    I can think of examples of when an owner might occupy a house solely for the purpose of obtaining the exemption without ever genuinely intending to make that house their main residence. I don't think that qualifies for the exemption (even if they tick all the other boxes).
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Intention is NOT a feature of CGT law. You must have occupied it as a "main residence" to satisfy the commencement of an exemption. The ATO then discuss at that page what other features may be exhibited by a person considering use of the exemption. Example : Moving a bed in and doing renos but family continue to live in rented accom until its habitable etc.

    The link cited includes the statement : A mere intention to construct or occupy a dwelling as your main residence, without actually doing so, is not sufficient to get the exemption. I would also argue a taxpayer cant really not intend for a place to be their main residence. There can be instances where a taxpayer must elect for one to be the main residence. An example may be a beach home. However both must have entitlement as a residence for that election to occur.

    The construction exemption still has a requirement for occupation and a minimum period of occupation applies. This is intended to cover the CGT issues that arise on construction otherwise technically a exemption could only occur from the first day of occupation.
     
  10. Cherrychan

    Cherrychan Member

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    Thanks for the information everyone. I have another query, if one was to live in a PPOR for a few months, renovate, flip then rinse and repeat a few times what would be the tax ramifications of that?
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Income tax with no main residence exemption and no 50% discount.
     
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  12. user8519

    user8519 Member

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    Just a question relating to this. If the property is in my name but utilities and insurance etc. are in spouses name, would this be an issue? Should all utilities etc be strictly in the property owners name?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    An issue with tax? I cant see there being any.
     
  14. melbournian

    melbournian Well-Known Member

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    You would only be able to get away with it for a few times say 2-3 times a year before the ATO deems it as a reoccurring assessable income since it has happened before in a pattern hence making any future gain or quite possibly past gains taxed under normal income tax rates.
     
  15. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The concept of "main residence" must be satisfied for a minimum of three months AFTER completion. To do so requires a whole occupancy not a mere bed and kettle. However the main residence exemption is a CGT rule. Income tax law may still seek to tax income where there is a regular enterprise and a intent to produce profit. Income law prevails over CGT in such cases and then there is no exemption. Seems risky to assume tax free profits.

    Google and Read MT2006/1 which applies to an enterprise.
     
  16. SirDingo

    SirDingo Well-Known Member

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    So, if someone bought a house and moved in as PPOR, spent say 6 months there and renovated it and sold it, there would be no tax liability on the profit, unless this was happening multiple times a year (therefore considered to be an enterprise)?

    What if it only happened once a year, every year - would the profit from the sale be CGT and income tax free?
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This could get caught as a profit making enterprise.
     
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  18. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The key issue with this question addresses repetition. Profit making intentions may indicate a tax concern for income tax on profits but repetition is not a requirement. A single profit making intention is enough.

    Asking this question may be the intent
     
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  19. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    First there is a three month residency requirement under law for a PPOR being renovated but profit intentions prevail under old and current tax law. Asking this question may address intent. The ATO opinion on enterprises is a further issue and the views are found in MT2006/1 but that is more about GSTthan ordinary income rules which have case law and issues well before CGT laws existed. Problem is the ATO forms aview and its is your problem to defend or argue it.
     
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