Revaluation of IP prior to renting to minimise CGT?

Discussion in 'Accounting & Tax' started by Harry Marcus, 20th Sep, 2019.

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  1. Harry Marcus

    Harry Marcus Well-Known Member

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    Hi All,

    I came across a surprising piece of advice in an article relating to CGT minimisation, and I'm keen to get confirmation as to whether this is actually true.

    Basically, it states that if you have an IP, you can have it revalued prior to renting it out and that value then becomes the new cost base for CGT purposes.

    11 Strategies To Minimise Your Capital Gains Tax

    It sounds peculiar, does anyone have a view as to whether that would hold true for the below scenario? If so, I may consider letting go of this IP....

    Dec-12: purchased 292K
    Jan-19: Evaluation at 500K
    May-19: New tenants moved in

    Cheers in advance,
    Harry
     
    Harry Marcus, 20th Sep, 2019
    #1
  2. Terry_w

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

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    This is incorrect.

    if you have a main residence that becomes income producing its cost base will be reset to the market value at this point in time. s118-192 ITAA97
     
    Terry_w, 20th Sep, 2019
    #2
  3. Mike A

    Mike A Well-Known Member

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    Incorrect and unfortunately the authors details are exclcuded

    Hopefully one day a website can be charged under the tax agents adminstration act for this type of negligent advice

    I no longer take on smaller clients as the amount of people finding false information on the internet has exploded and many didnt want to pay for the right advice. Business clients and larger corporates you just dont have that issue.

    Propertychat is a small way of giving back to the little guys and gals
     
    Last edited: 21st Sep, 2019
    Mike A, 21st Sep, 2019
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  4. Terry_w

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

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    Looks like author is unqualified. Down below he is also answering questions and giving specific tax advice.
     
    Terry_w, 21st Sep, 2019
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  5. wylie

    wylie Moderator Staff Member

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    His examples in 3 talks about moving out of a home you lived in from first purchase, getting a valuation when you move out. If you don't move back in and sell it down the track, isn't a valuation at the time you started to rent it the right thing to do (if you lived in it as a main residence from time of purchase)?

    The first sentence under No 3 doesn't specify whether the house was an IP or a main residence and that is confusing, but his example is the right way to do things, isn't it?

    If someone buys an IP and down the track moves in, it won't need a valuation as gains tax will be proportional to the time it was an IP and time it was your main residence (as it started out as an IP). Is that correct?
     
    wylie, 21st Sep, 2019
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  6. Harry Marcus

    Harry Marcus Well-Known Member

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    Thanks guys, I knew this sounded a bit off..
     
    Harry Marcus, 22nd Sep, 2019
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  7. craigc

    craigc Well-Known Member

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    As Wyllie mentioned above, the text is poor & simplistic, but the example 3 given in the link is much closer. See Terry’s tax tips & reference to legislation above.

    A) Must have been eligible main residence from start not an IP.
    B) Then not ‘revalued’ but the cost base is reset to market value at the time of first earning income. Eg Becoming IP for first time after main residence.

    Lots of items to check off if the situation applies to you, but if this is close to your situation, I’d suggest look further and seek professional advise.

    OP If you lived in your property as an eligible main residence (no other MR apart from a
    potential minor overlap) from Dec 12 until first renting out in May 19 it could be possible. Also the Jan 19 value is likely irrelevant.

    Seek professional advice.
     
    craigc, 26th Sep, 2019
    #7
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