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Tax question

Discussion in 'Accounting & Tax' started by johnpendlebury, 5th Feb, 2016.

  1. johnpendlebury

    johnpendlebury Well-Known Member

    Joined:
    18th Dec, 2015
    Posts:
    98
    Location:
    Adelaide
    Hi Guys,

    I am unsure regarding the tax implication of the following scenario.

    I have been living in my PPOR for the past 7yrs.

    I have just bought a new PPOR.

    Im of the understanding that if i sold my current PPOR then the capital gains would not be subject to any Capital Gains Tax.

    But what happens to this Capital Gains Tax exemption if I choose to rent the property out for a period of time and then decide to sell it?

    Say, 6 months or 2years or longer etc?

    Obviously if i rent the property out then I would be making various tax deductions on it given it would now be an investment property. In doing that do I automatically forgo the CGT exemption regardless of how long I rent it out for?

    Cheers
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Will you be claiming any other owned property as your ppor?

    @Terry_w is bound to have a tax tip.
     
  3. York

    York Finance Broker Business Member

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    I think it would depend on main residence. May be able to use 6 year rule. @Terry_w ?
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    6 year wont work - It only works if you dont live in another property you / spouse / partner own.

    There is the 6 month overlap rule. Sell former PPOR within 6 months and the full exemption applies (ie two overlap periods are exempt - new and former Main residences). Therafter the market value at date it first earns income is its new cost base. Its theraffter subject to CGT based on that value. (You should carefully document how you arrive at this value !!) But thats not your question....

    If property values don't rise much in say 4 years the cost base may well be present value, add selling costs etc and you may not have a taxable gain. Depends what you think values will do and value of existing loan on property. You could end up with a land tax and +ve geared tax concern too.

    Personal advice would confirm if this is case.
     
    Blueskies likes this.
  5. johnpendlebury

    johnpendlebury Well-Known Member

    Joined:
    18th Dec, 2015
    Posts:
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    Location:
    Adelaide
    Thanks guys.

    I will be moving into a new PPOR.

    So my current house is the only property i would have that I will be making deductions against (if i choose to rent it out).

    I guess I'm just tossing up whether it's best to sell it now rather than rent it out.
     
  6. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Location:
    NSW
    @Paul@PFI gave an excellent explanation.

    If you purchased at $300k and it's worth $500k the day you rent it out any CG calculation is only done on gains over $500k.

    I think people get too caught up on the idea of tax. You only pay it as a % of your profit so unless you were planning to pull the money out and reinvest and a much higher performing investment what is the point? CG will still apply on any new investments and you have all the fees associated with buying and selling again.