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Tax benefits of moving into a new property immediately over renting it out

Discussion in 'Accounting & Tax' started by Bris Jay, 23rd Mar, 2016.

  1. Bris Jay

    Bris Jay Well-Known Member

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    Hi all,

    I am looking to buy my second property and I plan on moving into it and renting out my current PPOR. Ideally, I would rent the 2nd property for 6 months whilst I get things ready to move. I'm concerned that by renting it out immediately instead of moving in, I will lose a few benefits.

    The house is likely to be $500k so immediately the stamp duty in QLD jumps from $8,750 to $15,925.

    Is it also correct that if we live in the new property for the first year then we can sell it within 6 years and not pay CGT?

    Are there any other benefits? From my research, it seems silly to rent it out for the first 6-12 months just to make life easier. Is that correct?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This could be the case, but it depends on many things. See
    Tax Tip 23: The 6 year Absent from Main Residence Rule Tax Tip 23: The 6 year Absent from Main Residence Rule
     
  3. dabbler

    dabbler Well-Known Member

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    Putting the CGT issue aside (as you have to choose only one as a PPOR)

    Are there other benefits to doing this ?

    I can see if you are intending on moving into new PPOR and renting original one with the view to sell it in a few years, then it would seem the new PPOR should not be a rental first.

    In NSW stamp duty is the same for either, so that is not an issue, as is rates.
     
  4. Bris Jay

    Bris Jay Well-Known Member

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    After reading the 6 year rule thread a bit closer, I am going to try to put the property in my partner's name and both names on the loan. She doesn't have a deposit but I have a whole lot of equity in our current PPOR (in my name alone).

    She is a FHB so she is exempt from SD and with the 6 year rule, I can continue to call house #1 my MR for 6 years. If the second house is in her name then there will be no overlap of MR between us and she can get CG exemptions for the full duration that we are there and potentially the 6 years after.

    This site and the members are such a wealth of knowledge.

    Now I just need the bank to approve her name going on the title with both us on the loan (using my security)!
     
  5. Cadbury99

    Cadbury99 Well-Known Member

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    I don't think you and your partner can use the 6 year rule on two main residences simultaneously.

    When your spouse or children live in a different home to you | Australian Taxation Office

    ATO deems a spouse to include a defacto.
     
    legallyblonde likes this.
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    You or your partner can each only claim one property in total as your main residence/s and the same applies to first home buyer schemes. I suspect she is not eligible. Between you and her you both must choose whether its 50/50 or 100% of one OR the other property but not both. That choice may be made later when a CGT event occurs BUT you cannot both claim more than one main residence at any time while you are partners in a domestic relationship. Ditto similiar rules apply for land tax. There is a continual review for overclaims and fraud for first buyers for such instances.

    I suspect that going back to your original post the issue is that you should clarify your personal tax situations so that you dont make fundamental errors resulting in penalties, arrears of land tax (non deductible) and other concerns.
     
  7. Bris Jay

    Bris Jay Well-Known Member

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    I've searched everywhere on the website First home concession | Homes and housing | Queensland Government and I've downloaded the form and there are no references anywhere to de-facto. Actually, there is not even a reference to a spouse.

    We have made a successful offer in her name tonight and the bank is happy to put both names on the loan. From everything that I can find, she will get the FHB concession. I'll have to talk to an accountant about how we can declare our main residence.
     
  8. sanj

    sanj Well-Known Member

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    before making such a major decision wouldn't it have been worth spending a small amount of money to get clarification from an expert?
     
  9. Bris Jay

    Bris Jay Well-Known Member

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    I didn't doubt the ability for her to claim the FHB concession so it wasn't on my radar.

    On another note, if I pro-rata CG on my current PPOR, how do I determine the value? I build my house and have no records of a vast majority of the money spent as there were huge amounts of cash jobs. Do I get a current valuation and then pay CG on the growth from the time it becomes a rental (6 year rules aside)?
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    On what basis are you going to pro-rata? It may be the value of the house when it first become income producing that sets the cost base.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The answer will be in the duties act QLD
     
  12. Bris Jay

    Bris Jay Well-Known Member

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    My bank valuation has come in at $700k and I've owned the property for 8 years. My build cost was likely somewhere in the high $500's. I'm actually a little unsure of how I would calculate it. I was under the impression that if the initial cost was $500k and you sell it for $800k after 12 years (let's say 8 years PPOR and 4 years IP) then the CG would be applied pro-rata. i.e. 33% of the profit. I have no idea if that's correct and if I am unsure of the exact build cost, can I simply use the current valuation to set a point for when CG applies. i.e. every dollar over $700k would be taxable as it's now an IP.

    On the FHB concession, I've read everything that I can find and the only reference anywhere is to joint-tenancy with a spouse. That is defined also as living de-facto for over 2 years. We are almost at the 2 year mark but for argument sake, if we miss this house and go over the 2 years, could she elect to NOT put the house as a joint tenancy or is that an automatic, non-negotiable for a spouse?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If it was your main residence until you sold the relevant figure would be the valuation at the time it was rented out.

    A person can chose to own their house anyway they want:
    Tenants in commone equal shares/unequal shares
    Joint tenant
    Single names

    see
    Legal Tip 4: Ownership Structure personal names Legal Tip 4: Ownership Structure

    Strategy: Buying Investment Properties in 1 name only Strategy: Buying Investment Properties in 1 name only
     
  14. Bris Jay

    Bris Jay Well-Known Member

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    That's all very useful info! Thanks.