PPOR into IP - tax considerations?

Can be very very beneficial - read Terry’s post again carefully.

E.g. a) If old PPOR1 experiences greater capital gains after moving out than PPOR2, ie perhaps downsizes from house in growth city to small unit in non-growth location.

In addition as Terry mentions, 3rd element costs whilst living in PPOR2 add all your interest, council rates, maintenance etc to cost base reducing the taxable gain.

E.g. b) High 3rd element costs could mean that even if PPOR2 had a greater gain than PPOR1 the increased cost base for PPOR2 could change whether it is beneficial to use the 6 year absence rule or not for CGT.

You need to keep all the records and run the numbers when one is sold (whenever that may be) to see which is the best option.

 

I hadn't even considered 3rd element costs - actually it's the first time hearing the phrase - so thank you (and Terry!).

 

Im amazed at accountants who have never heard of third element costs either !!!

In fact im not surprised to be honest. had an old client return and looked at the financials that accountant had been provided and how it had changed.

They classified special income units as a negative beneficiary distribution !!! Ummmm its equity.

The ramping up of ATO tax audits this year will expose many of these who should have left the profession years ago. Or maybe never even entered it to begin with.

 

People, and most accountants possibly, don't even realise you can 'claim' costs such as interest , rates etc, incurred while living in the property, against the CG when you sell

 

Spot on Terry.

How many clients have been told by their tax adviser that ALL property should always have a long running CGT record. I argue not many. And almost NONE offer a solution. One website I knows sells something to do it. I havent see a freebie. One day its use may change and then you may need the records....or just pay excessive tax.

For example if you ran a small business at home for a month it may mean you have to keep records ownership costs for which you never claimed a tax deduction. Even Airbnb for one night triggers the issue

One of our free tax resources for clients is the "My Property CGT Record".....It provides the facility to record around 15+ issues that could impact CGT (even for a owner occupied property)...We suggest one per property. Client maintains it indefinitely.

I dont do it often but here is a copy for PCers. This year we are including it and another handful of other free resources to our clients. It comes with our tax checklist for 2018....Another exciting new release is a excel sheet to record each property income and costs which does analysis and a portfolio view of wealth.....

The resource is copyright and must not be edited or modified without permission

 

Thanks Paul,

In fact, just taking the opportunity to say thank you to you and @Terry_w . Have been skirting around the edges of this great forum since SS days, and you are both so generous with your information - it is appreciated.

 

Agree, thanks Paul & Terry. Your resources are very helpful.