Purchased PPOR rented for a few weeks

Hello everyone!

I was wondering if anyone can give me guidance. I bought a place (signed end of Feb) and it settled last week. The property is currently tenanted and the tenant is moving out within the next 3-4 weeks.

I will be moving in as I purchased it as PPOR.

Do I need to get a valuation for when the tenant moves out for CGT purposes in the future?

Thanks for your help and insights!

 

Tax Tip 244: A valuation is not needed if Moving into an Investment property Tax Tip 244: A valuation is not needed if Moving into an Investment property

 

Apportionment and third element costs?

 

Thank you Terry. The property will be PPOR. Is a valuation still needed if it's been rented only for a few weeks after settlement.

 

There is no tax reason why you would need a valuation.

Tax Tip 120: CGT and moving into an Investment Property https://propertychat.com.au/community/threads/tax-tip-120-cgt-and-moving-into-an-investment-property.10714/


Tax Tip 321: CGT Differences between Renting a Main Residence and Moving into an IP Tax Tip 321: CGT Differences between Renting a Main Residence and Moving into an IP

 

s118-192 is the relevant law concerning valuations. It ONLY applies when a property has always been a 100% private (ie no business use etc) main residence. It draws a lie in the sand and only occurs once if it is eleigible. Rentinga spare room also excludes its use. All cases which cant use s118-192 use the pro-rata basis based on numbers of days.

Instead the dates will be very relevant. The property will always be subject to pro-rata CGT however its not as bad as it sounds. The period of time that is taxable is a fixed period eg 28 days. 28 days as a % dilutes over the long term eg Aftre 1 year it is 7.67% (28/365), after 10 years it is 0.76%. That is a % of the total profit. But there is good news and good you asked so you can now retain records as you know this well kept secret. Many find out too late.

A pro-rata CGT event allows 3rd element cgt costs to add to the costsbase, which will reduce over profit (or create a loss). 3rd element costs are any costs of ownership for which you cant caima deduction and includes, loan interest, borrowing expenses, improvments, (hard) landscaping, repairs, maintenance, rates and building insurance. I did calcs for someone yesterday and theirs added up to over $120K. When you use 3rd element costs you cant calculate a tax loss. Its just $0 profit as assessable.

 

Third element costs being costs you cant deduct. Ie costs incurred when the property is ppor.

so assuming a ip for the first month then ppor for 119 months, all non deductible costs for the 119 months will be 3rd element costs?

 

yes

 

Can it result in a pro rata’ed capital loss?

 

no

 

No. 3rd element costs do not allow any loss. The maximum benefit is a $0 CGT event
Elements of the cost base and reduced cost base

Note you cant include 3rd elements on collectables or personal use assets. Property tick.