Hi, So about a year ago I purchased a house and land package close to Melbourne, the house is 3 bedrooms, 25km from the CBD and I utilised my First-Home owner grant (of about $10k) within it.. This saved me on a number of initial expenses and removed the stamp duty cost. Once it is built (Should be about 6 months from being finished) I'm basically going to move in there with my girlfriend and she will most likely rent from me. The loan is interest & principal (30 year term) and the repayments on it (once i've deducted the girlfriends rent paid to me) are roughly the same as what i would be paying renting somewhere in a similar location. This obviously has an effect on the Rent Vs Buy equation... Basically I'm planning on living there for a year (to satisfy the FHOG) and then turn it into an investment property and rent it out, and from then on the huge initial interest paid in the mortgage will be tax deductible... (Or I think this would just be negatively geared?).. I'm also planning to draw down on the equity with a LOC at a later point, i've done a lot of research in this area so i'm pretty well across it. My question is firstly; For the first YEAR whilst i'm living there.. are there any tax benefits because the house will be producing me income (through the rent my girlfriend gives me), even though it's considered a PPOR? Would you suggest against this whole route outlined above, as the rent vs buy equation almost always states to live in the house for 5 years+ for it to be financially beneficial? Would you recommend I live there longer? Would there be anything else you could recommend to play this out better? Thank you!!
There could be small tax savings if part of the house was rented. But take care went renting to spouses - tax and legal. But there would be a large CGT disadvantage in renting it out. 6 year rule won't apply to whole house if the whole wasn't your main residence.
CGT doesn't concern me as I plan on keeping the property for the long-term (well and truly past 6 years). Other than that, is this route optimal? Thanks Terry, appreciate your input.
still CGT is worth considering as it will likely be paid at some point - unless you can manage to die in the property as the main residence. Whether it is optimal or not I cannot answer, but you may be saving tax by renting it out and renting elsewhere.
I would allow your girlfriend to board, to contribute to the running of the house, rather than pay rent as such. From my understanding that way you should maintain your CGT exemption. @Terry_w will be able to confirm.
Board, now that's an idea! To get my head around this a bit better, could you answer the below scenarios.. All these scenarios are under the assumption I DON'T recieve rent/come from my partner... A) Live in PPOR for a year, Rent for 5 years, sell the house.. I'm presuming i'm completely exempt from CGT? B) Live in PPOR for a year, Rent for 20 years, sell the house.. Am i only exempt for the first 6 years of renting it out? what about the other 13? C) Live in PPOR for a year, Rent for 20 years, move back in for a year.. sell the house.. i'm guessing this doesn't change much? but does this reset the CGT exemption calulation? Thank you!
Pls see in bold. A) Live in PPOR for a year, Rent for 5 years, sell the house.. I'm presuming I'm completely exempt from CGT? Only if you don't have another PPOR that you're claiming the exemption for. So if you're renting for eg, you're fine. B) Live in PPOR for a year, Rent for 20 years, sell the house.. Am i only exempt for the first 6 years of renting it out? what about the other 13? Depends if you have another PPOR in the interim. Assuming you rent forever, the other 13 you'll pay CGT on. C) Live in PPOR for a year, Rent for 20 years, move back in for a year.. sell the house.. i'm guessing this doesn't change much? but does this reset the CGT exemption calulation? Same as answer b, except you won't pay tax on any growth in the last year. *I'm not a tax guru.
A. Could be depending on the circumstances B. CGT would be apportioned C doesn't change much CGT would still be apportioned.
