Sell before 6 year rule, keep or redevelop?

Have a 3 bedroom place in Umina Beach NSW. Build in the 1970s it is quite old with an unrenovated bathroom and kitchen, some minor building defects known but haven't had it checked out for 10years.

We moved out 5 years ago and have been renting elsewhere ourselves since and have had tennants there so we can still qualify for the 6 year PPR rule. When we moved out I have an email valuing it from the real estate at 550k, it is now worth around 800k, so I think we would save around 70k or so in capital gains by selling now?

Two things worry me going forward, the property being old and eventually needing major renovations or knock down rebuild. Climate change and rising sea levels affecting the area one day - 25+years?

Don't want to buy a place to live in, we like the flexibility to rent and move close to where work comes up.

Current tennant is moving out soon, trying to decide between selling now to save the 70k on capital gains and buyer a newer investment somewhere else (but considerable costs to sell and rebuy). Do some minor reno on the bathroom and rent it out again and miss the 6yr rule. Knock down and build a duplex and rent out both sides hold long term. Block size is 550m. Any idea on how much a 2 or 3 bed duplex building cost would be?

Any feedback appreciated

 

Its not really a savings. If you sold it now it could potentially be exempt from CGT.

Other things to consider:
If might increase further which you would miss out on if selling.
You could sell after 7 years or more, and still get a very large reduction in CGT
You could potentially buy another property while keeping this
You could move back in for a bit and then rent it out again and the 6 years starts again.

 

Thanks Terry!
All good things to consider
If we were to move back in, is there a time period? I read 6months somewhere but 12 months elsewhere, can't seem to find the time required for the 6 year period to restart.

Thanks.

 

The legislation has no time period. It must be re-established as the main residence.

 

I would be wary about rebuilding to sell for profit making and GST etc. But its worth checking a modest new build project property and cost and what it may do with value. Most project builders at Homeworld Warnervale have loads of duplex plans and can cost it. Free info and they are generally familiar with approval costs etc Umina has become a in demand area.

 

Hi Terry,

Is there a minimum amount of time an owner needs to stay in their PPOR from the purchase date before renting it out and selling it within the 6 years period, to be exempted from CGT ? Also do they have to move back within the 6years period prior to selling in order to qualify for this tax benefit ?

 

The legislation has no time period. It must be re-established as the main residence.

Not need to move back in.

 

So what must done to re-establish as the main residence if the owner doesn't need to move back in before selling ?

 

If they will be less than 6 years absent there is no need to re-establish it as the main residence. Only needed if you want the 6 years to start again.

 

You are not really saving anything by selling now or later. You don't need to pay the CGT up to the 6th year.
I was in a similar situation 5 years ago.
I decided to realise the profit and buy 3 smaller IPs in different states to spread my exposure. What would you do with the extra money if you sell it now?
If you can put it for a better use, sell it.
If you are going to spend it on luxury then keep it.

 

Yes correct, but what task does one need to do when they need to 're-establish' ? Like do they need to change their address with the ATO, have photos of the home as evidence etc, utility bills in their name etc etc

 

they would need to physically move in with furniture and personal belongings and actually live there.

 

Thanks Terry

 

Also there's no minimum time in the length of stay required in the legislation when they re-establish it as their PPOR, similar to their first time round living in it?

 

no minimum time legislated.

 

Keep good evidence of your move.

Leave your rental property, keep evidence of exit reports and bond return
Receipts for moving furniture etc.
Connect utilities in your name, stay for at least one (preferably two) billing periods to show you are actually living there
Change electoral roll and contact address everywhere possible.

Hard to see how you could do it in less than 6 months unless you can show evidence of a job change etc.

Chances are good that you may never have to prove moves, but better safe than sorry.

 

section 118-150 allows it for 3 months - after construction the taxpayer must live there for at least 3 months to be able to claim it as the main residence for up to 4 years prior (while a vacant land and construction).

This section won't apply in this situation, but it shows the law contemplates that living in a property for as little as 3 months could be enough.

It is also possible that a much shorter period is enough.