Question about O/O to IP - Valuation. Am I right?

Discussion in 'Accounting & Tax' started by younginvestor95, 2nd Feb, 2020.

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  1. younginvestor95

    younginvestor95 New Member

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    Hello all,

    First post on this thread. Seeking some advice.

    I currently live in my own place, and have a mortgage owing. My girlfriend of 2 years currently lives at home with her parents. She may move out this year and purchase her own home (First Home Owner) as she prefers some independence.

    Later down the track, if things keep going well the way they have been, we may both decide to move in together to my place (its bigger and closer to the city) in around August or September of 2023. In that case, I suppose she will have to convert her property from Owner Occupier, to Investment Property.

    Question 1: Although she will still benefit from the Stamp Duty Waiver as a first home owner, once she sells the property, I believe she would have to pay CGT, with the Tax Base being the value of the property at the time she deicdes to move in with me (2023) Is this correct?

    Question 2: How is the value of the property in 2023 established? Is it her responsiblity to ask a local real estate agent to come in and offer a FREE Market appraisal at that time, and so she can then use that value as her cost base? Or does she have to pay someone else to do this?

    Many thanks!
     
  2. Terry_w

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

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    1. it could be correct depending on the circumstances. It could also be CGT free too

    2. She will need to ascertain the value and justify this if audited - if not claiming the main residence exemption
     
  3. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Re the valuation - a bank valuation would hold more sway than an RE appraisal. They’re always skewed high to lure in a new seller ;)

    CGT will be payable from the day she moves out AND nominates another house as her PPOR for tax purposes. If she’s living with you in a house you own, or your renting together, she may have 6 years exemption before CGT kicks in. Best to consult with a tax pro to get full deets. :)
     
  4. Terry_w

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

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    The above sentence is wrong.

    You will generally want the valuation as high as possible where the cost base is reset when first rented. Otherwise more CGT might be payable.

    see
    Tax Tip 173: Strategy – Don’t rely of a lender’s valuation for CGT Purposes Tax Tip 173: Strategy – Don’t rely of a lender’s valuation for CGT Purposes
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    A complicating fact to the original question is the CGT main residence absence exemption. And you.

    When your GF moves in with you this could result in you being considered spouses for tax purposes. While GF may be eligible to use the 6 year absence concession spouses can only have one main residence (or a partial exemption each). You cant both have a exemption each.

    The valuation may only be needed if a full exemption is available based on actual residency and on the absence rule. eg if she sells after 6 years of it becoming a IP. The spouse issue likely needs some advice.
     
  6. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Hey Terry - can you please explain why it's wrong? Happy to learn something new - but maybe I'm just not being clear.
     
  7. Terry_w

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

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    CGT is only payable on sale - assuming the exemption applies. There are no nominations in CGT, you just declare a property as the main residence at sale, or not. The 6 year rule might also apply - if perhaps it won't if the spouse has used it on a property sold
     
  8. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Yeah that sentence was in conjunction with the one below it, re the 6 yr rule. Probs wasn't clear enough. Thanks :)
    PS - I know it's only payable on sale - that was my assumption :) But it's charged on growth/gain from a certain date...hence needing to decide whether it's your main residence or not, get vals etc. I think we both know what we mean ;)
     
  9. Terry_w

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

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    Depending on the circumstances the cost base might be reset to market value at the date first income producing - but there are cases where this may not happen.