PPOR purchased with tenant on lease

Hi Folks

Hope you can help. I'm perplexed re my CGT liability for a new property I settled on 3 Dec 2016.

I purchased it as a PPOR intending to renovate with bathroom and kitchen, live in and sell at a profit to upgrade sometime down the track with the hopefully substantial profit that is CGT free. I also tend to move a bit and like to rent out my PPOR so I take advantage of the 6 yrs before CGT kicks in esp as this property is a bit small I can only see myself in it for 2 years probably.

But the property I bought has a tenant on a lease until March (was originally told it was month to month but ends in March 2017 - I went ahead with purchase anyhow as I felt it has great potential to increase in value)? But now I've lost the 6 yr period. Is there any way around this?

Or if I consider this now to be a totally Investment property purchase, then if I move in for say 2 years can I still claim the interest on the mortgage still against it as an IP if I live in it between tenants? What records do I need to keep? Do I need to do valuations before and after renos?

Your advice is appreciated. Cia

 

See your accountant about the issues raised.

The forum has plenty of posts on these matters.
Also read 1st world problems.

 

1. Immediately, or in plenty of time, issue appropriate notices to tenant that you won't be renewing their lease. Check time frames carefully to make sure you comply.

2. Move in in March, do your renovations etc and establish it as your PPOR.

3. When you move out of what is now your PPOR, as far as I am aware you should be able to trigger the 6 year CGT exemption possibilities. Check with your accountant.

4. While rented at any time interest, expenses etc are deductible. Rate, insurance etc will have to be proportional. You can't pay an annual bill and claim the lot if only rented fir part of the time.

5. The initial three month tenancy will always be subject to CGT. When you sell, you will count up the months rented and the months PPOR (6 year exemption possible). The proportion rented will be subject to CGT. Keep good records of dates in and out. No valuations needed as IP first.

But this is my understanding only.
I am not an accountant.

If this is your first IP purchase, it would probably be well worth it to speak to an accountant to start out doing things correctly, rather than having to correct or amend things further down the track.
Marg

 

It can't be the main residence until you live in it. But if you move in in march that is only about 3 or 4 months that it had been subject to CGT. It will then be worked out on a time basis.

If you sell in say 8 months then 50% of it would be subject to CGT and then the 50% CGT discount applied.

If you sell it after 6 years it would be something like. 5% of it that would be subject to CGT - the longer you hold it the smaller the CGT will be.

And interest and other costs while you are living in it will be able to be used to reduce any CGT - so it may end up being nil.

You could use the 6 year rule once you move in and then out again

See:
Tax Tip 86: Don’t be so fearful of generating income from the main residence https://propertychat.com.au/communi...nerating-income-from-the-main-residence.6302/

 

Fabulous thanks Terry_W. I was confused about how to claim the interest - so when I'm in it I can't claim against my PAYE annual tax, just against the CGT costs for an investment?

 

yes

 

Great thanks very much.