Should I get a house valuation for CGT reasons

Hi, I hope you're all well.
I own my house here at Harris Park/ Parramatta which i bought about 15 years ago. I have rented it out in the past for 3 years from about 2012 to 2015 when i worked interstate, but have since nbeen living in it. I bought an investment house at Oak Flats in the Shellharbour 3 months ago and is now rented out. I don't intend to sell either at least for many years. If i did it would be this house at Harris Park. Should i get a valuation on this house now? Basically I'm curious as how CGT works if for example I sold this house in 10 years time just as a hypothetical example.
Thanks so much.

 

I am confused about what happened but this might help


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

 

Hi Terry.
Thanks for your reply. Ok I should clarify. I own my house which i live in now here at Harris Park. I bought this 15 years ago. I did rent this out for 3 years back in 2012 to 2015 when i worked interstate. 3 months ago i bought an IP at Oak Flats which i've never lived in and currently rent that out to a tenant. I plan to move into this IP at Oak Flats in about 2 years time and rent out my house here at Harris Park. So my question is if i decide to sell my Harris Park house in say 10 years time, will i incur CGT and if so, what date will it's initial value be based from (I certainly wouldn't want it to be from when i bought it 15 years ago)? And with that in mind, should i get a valuation on my Harris Park house now or do they just figure it all without the need for me to get a valuation? I hope that makes it clearer. Thanks again and i should have first read your link which you posted, i will now.

 

Hi again Terry.
I posted a reply which you probably see below, I think. Pardon me, I'm new to this site. Please feel free to let me know the appropriate way I should reply. I've just read the link you posted, thank you. However, my situation may be slightly different to the example, in that were I to sell, it would be my current PPOR. I imagine it may not matter which is sold, the PPOR or the IP, but are you saying in my case, the initial value for CGT purposes would be the value of whichever property is sold at the time of buying the IP? And if so, how would they work out the initial value of my current PPOR (Harris Park) given this is the one that would most likely be sold in say 10 years time? Thanks again.

 

While it was rented for 3 years, did you have any PPOR?

This tip from Terry might help. Tax Tip 23: The 6 year Absent from Main Residence Rule

 

Hi Tyla
Thanks for your reply.
No. While my Harris Park house was rented out for 3 years, my work provided me accommodation interstate. I then moved back into this house at Harris Park where i live now as my PPOR.

 

I believe you have no CGT concerns. You only had one PPOR.

 

Thanks for your reply Gockie.
But what about my plan to move into my IP at Oak Flats in 2 years time and rent out my Harris Park house out, then possibly sell my Harris Park house in 10 years time. Our street here is zoned r4 for units and although a developer needs 2 blocks, it may make sense to sell with a neighbour down the track. Sorry to repeat my question which you may already have answered, but then in 10 or so years, would my Harris Park house be subject to CGT and if so, how would this be calculated? Thanks.

 

YOu need to consider a few different sections of the tax act s 118-192mITAA97 and s118-145
S118-192 makes the cost base reset to market value when first produces income, but you might be able to use the 6 year rule in s118-145 to push this back to when it is rented the second time.

You need specific tax advice as there are also a few strategies to consider

 

Thanks Terry. That is useful information. And it sounds like the burning question is whether i can use that 6 year rule as you mentioned.
However i do have one more question. My understanding, albeit limited, is that for the purposes of the 6 year rule, it doesn't matter which property is rented. My Oak Flats property is now being rented out. Your thoughts? And i will take your advice on speaking with my accountant. Thanks.

 

you can only use the 6 year rule on a property that was formerly your main residence.

 

Thanks Terry for your patience and time with my questions. So in a nutshell, i intend to move into my Oak Flats IP in 2 years and to live in that for many years, whilst renting out Harris Park. Then in say 10 years i may sell Harris Park. When in your opinion will my 6 year rule come about? Remember i have previously rented Harris Park out for 3 years and am currently renting out Oak Flats for the last 2 months. Thanks again and apologies if you've already answered this.

 

I am not sure but it sounds like you would need a valuation based on the value of Harrist Park when it next becomes income producing because the first period it was still your main residence.

 

Thanks for all that Terry. I was just googling it all and it's difficult to find my scenario. It does appear that my 6 year exemption will reset as i will have moved back to my ppor, maybe, as it may require me as having been back here for 6 years. It may be very close. I don't think they allow you to move back and forth between 2 properties and make it 12 years. I'll have a chat to my accountant. Thanks again for taking the time.

 

There is no need to move back in for 6 years and the legislation says the 6 years starts again if you move in and then rent it out again. There is an example built into the law.

 

Hi Terry, I think this is the relevant part of the legislation "they cannot claim any other property as their PPOR for that period of time". Your example may not be relevant to my scenario of having another property. I can't help but think i couldn't just move back and forth between my 2 houses every 6 years. I could be wrong, but i remember when i spoke with my accountant when doing my last tax return, that the rental period of both properties is relevant to the future sale of either. It's possible i misunderstood, but surely otherwise it would be too obvious and big a loophole.

 

yes that is possible. But when you sell you cannot claim both for an overlapping period.

See a list of all my articles on the 6 year rule here
23+ Articles on the 6 Year Rule 23+ Articles on the 6 Year Rule

 

Thanks Terry. I did just now look at those articles of yours and well done on having a comprehensive library on this. It's a big issue i think on this forum. I would love for you to write one on my specific scenario of "bought A in 2006 for 350000 as PPOR, rented A out from 2012 to 2015 then moved back into A, bought B in 2021 for 600000, rented B out from 2021 to end of 2022, moved into B beginning 2023, rented A out from 2023 to 2030, sold A in 2030 for let's say 2m". You probably have answered it in your articles, but please excuse me, i just couldn't figure it out. I really do appreciate all the time you've put into by question though.

 

Dont expect personal advice, for free.

You should consider s118.192 which would revalue a property that was ALWAYS your home until it produces income for the first time. It is mandatory...once, if the conditions are met. In that case the valuation ON THAT DATE will reset the costbase. Therefetr CGT is prop-rata based on dates. And choices reggardin which is a residence and absence etc.

Property A appears to meet the requiremnts for s118.192 but B does not.

 

Thanks Paul.
And yes I'd certaintly ask my accountant.
I did read s118 thanks. That does seem relevant. But I'm still trying to find s192. I will.
My main concern was property A, my current PPOR at Harris Park. And like many people I'd imagine, i intend to live and retire at property B nearer to the beaches. Eventually A would have to be sold as my street is zoned r4 for units, though 2 blocks are needed.So I think it'd make sense to sell with a neighbour or 2 sometime. I'm in no rush to do this.
Thanks again for your reply.