Vendor-turned-Tenant

Discussion in 'The Buying & Selling Process' started by Ringo1, 18th Jul, 2021.

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  1. Ringo1

    Ringo1 Active Member

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    Hi All,

    I purchased a PPOR property recently and the vendor requested if they could continue staying in the property post settlement, reason being they haven't been able to secure a property yet.
    They are a young family of four, and their case is genuine.
    Three to four months is the duration they will be renting and they are prepared to pay more. They will also follow the conditions and special requirements that I may have.

    I am fine with this as I have no urgency to move in immediately.

    The vendor will be appointing a leasing agent to prepare a leasing agreement. The conditions that I can think of are:
    1) leasing fees and leasing management fees payable by the vendor/tenant
    2) smoke alarm?

    Obviously, all standard residential agreements (entry and exit condition report, bond, professional cleaning, etc.) will apply.

    Does renting a PPOR out prior moving in have any impact on claiming CGT Exemption?

    For insurance, I will purchase a landlord insurance and change it to home and content insurance later.

    Want to know if anyone in this forum can share their experience? Any advice and tips will be much appreciated :)
     
    Ringo1, 18th Jul, 2021
    #1
  2. thatbum

    thatbum Well-Known Member

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    Why wouldn't you just delay settlement instead?
     
    thatbum, 18th Jul, 2021
    #2
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  3. Ringo1

    Ringo1 Active Member

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    Wouldn't it be better to start paying the mortgage sooner than continue paying rent?
     
    Ringo1, 18th Jul, 2021
    #3
  4. The Y-man

    The Y-man Moderator Staff Member

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    I recall we had a similar situation - I think my lawyers drew up some license agreement where we got $$$ without going to a rental agent etc - basically money for delayed settlement? (it was a while ago so I can't remember the exact details....)

    The Y-man
     
    The Y-man, 18th Jul, 2021
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  5. thatbum

    thatbum Well-Known Member

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    Huh? What rent?
     
    thatbum, 18th Jul, 2021
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  6. jaydee

    jaydee Well-Known Member

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    Agree with others, just delay settlement for an agreed sum. You risk your PPOR exemption if you allow it to be leased before occupying it.
     
    jaydee, 18th Jul, 2021
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  7. Ringo1

    Ringo1 Active Member

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    I am currently renting and the rental amount that I'm paying is the same as the mortgage repayment
     
    Ringo1, 18th Jul, 2021
    #7
  8. Ringo1

    Ringo1 Active Member

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    this is one thing I need to confirm with an accountant. Will I definitely loose the exemption or is this a grey area?
     
    Ringo1, 18th Jul, 2021
    #8
  9. Trainee

    Trainee Well-Known Member

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    Not that simple. Cg might be apportioned instead.
     
    Trainee, 18th Jul, 2021
    #9
  10. Ringo1

    Ringo1 Active Member

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    Okay, here's what written on the ATO website. CG is aportioned.

    Calculating a partial exemption - main residence | Australian Taxation Office (ato.gov.au)

    If your home is only partially exempt under the main residence rules, you calculate the taxable part of the capital gain as follows:

    A × (B ÷ C)

    Where:

    A is the total capital gain from the CGT event

    B is the number of days in your ownership period when the dwelling was not your main residence

    C is the total number of days in your ownership period
     
    Ringo1, 18th Jul, 2021
    #10
  11. Ringo1

    Ringo1 Active Member

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    what's the difference between a license agreement and a rental agreement?
     
    Ringo1, 18th Jul, 2021
    #11
  12. Islay

    Islay Well-Known Member

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    yes we did this about 3 years ago. The purchaser was responsible for everything from the day they moved in and paid weekly rent. It worked out well and was all sorted at settlement
     
    Islay, 18th Jul, 2021
    #12
  13. Ringo1

    Ringo1 Active Member

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    Hi Islay, were you the purchaser or the vendor?
     
    Ringo1, 18th Jul, 2021
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  14. The Y-man

    The Y-man Moderator Staff Member

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    Might be a good question for the legal and accounting experts @Terry_w and @Paul@PFI :D

    The Y-man
     
    The Y-man, 18th Jul, 2021
    #14
  15. Islay

    Islay Well-Known Member

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    sorry @Ringo1 just realised this not for you - we were the vendor
     
    Islay, 18th Jul, 2021
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  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Residential tenancy act won't apply to a licence agreement usually.
     
    Terry_w, 18th Jul, 2021
    #16
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Terry_w, 18th Jul, 2021
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  18. The Y-man

    The Y-man Moderator Staff Member

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    Hmmm... yeah I might be getting mixed up with early occupancy too ....how embarassment. As I said, was ages ago :p :p:p

    The Y-man
     
    The Y-man, 18th Jul, 2021
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  19. Rugrat

    Rugrat Well-Known Member

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    But if the vendors are now tenants, then you will still have to pay your own rent anyway? Bit confused by your logic here.
     
    Rugrat, 18th Jul, 2021
    #19
  20. thatbum

    thatbum Well-Known Member

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    But in both scenarios you are still renting...?
     
    thatbum, 18th Jul, 2021
    #20
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