Selling IP and CGT liability

I was discussing this topic with a friend earlier this morning and thought I'd throw it out here to see what you guys think/ or should do?

She is planning on selling an IP that she has owned in Melbourne for quite some time and wants to reduce the CGT liability as much as possible. The IP is currently rented and she was thinking of moving into it for a year and then selling it, and then moving back into her PPOR.

Would this reduce/eliminate any CGT liability against the IP?
Is there an alternative/smarter way to reduce CGT liability by doing something else?

Is there an alternate strategy she could employ? (From what i understand the plan to sell the IP is in preparation/planning for retirement for her and her husband).

Thanks in advance.

 

Waste of time potentially. That myth is included in
Tax Tip 180: 10 Tax Myths Tax Tip 180: 10 Tax Myths


See
Tax Tip 119: How to Reduce CGT on Investment Property (Part I) Tax Tip 119: How to Reduce CGT on Investment Property (Part I)

Tax Tip 209: How to Save CGT on Investment Property Part II – Planning ahead Tax Tip 209: How to Save CGT on Investment Property Part II – Planning ahead

 

Hop in a time machine, go back several years & live in the place as a PPOR losing the exemption for the period which she'd be claiming in the current PPOR. Then weigh up which property has had the better capital gain over that period (and taking a punt that the current PPOR won't perform any better by the time it comes to sell that one).

Oh! it's 2019 & people on earth don't have access to a time machine (yet).

 

Its a common taxpayer question and the answer is never as people would like it to be. The main residence exemption cannot be used for the past ownership. Its not a choice. The taxpayer must firstly make the property their main residence. Then there may be a choice if more than one property may comply. But until it starts to be the main residence it cannot be a choice and it cant apply to the past.

The spouse would also impact this issue since two spouses cannot both have a main residence exemption.

 

If retirement is close, she may be better off to keep the IP until they retired.

Then sell in a year of low or no income.

Moving in will only help proportionally for the time she actually lives there. And claiming this reduction will mean her present PPOR will attract some CGT when sold. Given the expense and inconvenience of two moves this idea would probably cost more than it saves.

 

downsizer contribution strategy ?

 

The issue of her spouse shouldnt be ignored and will complicate the CGT options available. If a poor election for the exemption is made it may affect other property or be ineffective altogether. I would be seeking tax advice in such cases as its easy to get wrong in many ways.