Profit on PPOR and Loss on IP

Discussion in 'Accounting & Tax' started by parlayman, 16th Nov, 2019.

Join Australia's most dynamic and respected property investment community
Tags:
  1. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    Hello All,

    Hope everyone is doing well.
    I wanted to post my situation and get some insights please. Here it is:
    • We're moving to a new house in the next 2-3 months (latest Jan 2020)
    • We plan to sell our current PPOR before moving. It's been our PPOR for more than 10 years and the sell will result to a profit
    • Once we've settled into our new house, we then plan to sell our one and only IP sometime in 2020. We anticipate to sell this at a loss
    Questions:
    1. Do we need to get a bank valuation on our current PPOR before selling?
    2. Do we need to worry about CGT when we sell our PPOR?
    3. How will the sell of our IP (at a loss) impact our tax?
    My (novice) understanding is that we are not going to get CGT since it's been our PPOR for more than 7 years. And as for the loss that we will incur, we can use that to offset any future profit if we sell another investment. Are these correct? Is our situation complex?

    Appreciate all your inputs!
     
  2. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    35,802
    Location:
    Australia wide
    1. I can't think of any reason what you would need a valuation.

    2. You have implied that it wasn't always you main residence so yes you should be thinking about CGT.

    3. A capital loss on the IP may offset a capital gain on the main residence and/or be carried forward

    Get some tax advice
     
  3. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    Thanks @Terry_w

    Our current PPOR has been our main residence. We started renting it on 2005 and then bought it 2006.

    I did forward this to our tax agent and was told our situation is complex and he's willing to give us advise for $400. I'm no expert but can't think of a reason why this is viewed as complex and wondering if it's worth paying $400 to be advised on.
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    24,320
    Location:
    Sydney or NSW or Australia
    So you were the tenants prior to purchase?

    Has it always been your residence since purchasing? Or were you absent for a period of time?
     
  5. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    Yes, we are the tenants prior to purchase and never absent for a period of time. We never made it a rental property NOR live somewhere else.
     
  6. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    35,802
    Location:
    Australia wide
    Did you live in the place since purchase? Was it ever rented or income producing?
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    24,320
    Location:
    Sydney or NSW or Australia
    Sounds like a cash grab for basic confirmation.
     
    Stoffo, Terry_w and parlayman like this.
  8. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    Yes, we lived (and still are) since purchase. It was never rented.

    We did a refinance a few years ago and use the equity to buy the one and only IP we have. Plus, started to invest in managed funds with margin loan.

    Will that be considered income produced by the PPOR?
     
  9. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    35,802
    Location:
    Australia wide
    No that is not income producing. Sounds like it will likely be CGT exempt if under 2 hectares and neither spouses claimed another residence as the main residence during the period of ownership
     
    craigc and parlayman like this.
  10. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    I can only wish it's 2 hectares :)
    It's only a 2bdr apartment and neither myself nor my spouse claimed another residence as PPOR during this period.
     
    Archaon and Terry_w like this.
  11. Stoffo

    Stoffo Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    4,028
    Location:
    Sydney
    Sounds like your current PPOR will be CGT exempt (never income producing)
    So long as it is sold within 6 months of the new purchase

    The IP, selling at a Capital loss is a loss, and can only be offset by a capital gain (housing/shares) made in this or future tax years.

    So yes, your assumptions are basically correct.

    Tax agent should and could have explained this to you in the length of time taken to explain that he would require a $400 fee :eek:
    Find a new accountant ;)
    Ensure you have been claiming the interest component of the redraw for IP purchase.
     
    parlayman and Archaon like this.
  12. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    Thanks @Stoffo

    We do plan to sell it immediately after moving to our new place - hopefully it will not take 6 months to sell. :)

    As for the loss, how long can I carry this forward into the future? Does it have any expiry?

    Looks we need to start looking for a new one. :D
    And yes, we've been claiming the interest component of the redraw for IP.
     
  13. Stoffo

    Stoffo Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    4,028
    Location:
    Sydney
    The loss should carry forward for many years.
    Not even sure there is a limit any longer.

    Remember to keep the IP loan balance and it's loss seperate to continue claiming the interest.

    Two main avenue's to make a capital gain are property or shares
    Property requires a larger outlay, so a few spare $$s put into the share market may give you a CGT return to offset against (not advice)

    Good luck, and keep trying
     
    parlayman likes this.
  14. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
  15. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    One more thing - and this might turn out to be a critical piece of info I only realised after checking our online account. :eek:

    Initially we have one loan with lender X. After refinancing to use equity, we ended up with 3 splits with the same lender X. First split is for our PPOR. Second, for IP purchased. Third, for shares.

    In our online account, all these loans have security linked to both PPOR and IP.

    Does this change everything? :confused::eek:
     
  16. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    35,802
    Location:
    Australia wide
    Security bis irrelevant for tax. Loans are largely irrelevant for CGT too
     
    parlayman likes this.
  17. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    That's a relief. Thanks @Terry_w :)
     
    Terry_w likes this.
  18. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    24,320
    Location:
    Sydney or NSW or Australia

    Hangs around forever but can only offset capital gains.
     
    parlayman likes this.
  19. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    35,802
    Location:
    Australia wide
    parlayman likes this.
  20. parlayman

    parlayman Member

    Joined:
    22nd Oct, 2015
    Posts:
    14
    Location:
    Sydney
    Terry_w likes this.