Join our investing community

Can I include the costs of purchase to offset CGT if it was my PPR for a time ??

Discussion in 'Accounting, Tax & Legal' started by katz, 19th Aug, 2008.

  1. katz

    katz New Member

    Joined:
    20th Sep, 2007
    Posts:
    4
    Location:
    Brisbane
    I sold a rental property last Oct so need to work out he capital gains for the tax return.

    Situation is as follows:

    - Property Purchased Oct 2001

    - Moved in Jan 2002

    - Did extensive renovations during 2002

    - Moved out Jan 2003 and rented out

    - Sold Oct 2007.


    Now I assume I need to determine the value of the property in Jan 2002 when first rented for capital gains purposes. I was planning on using comparable sales to help me do.

    My question is can add in any of the costs of purchase e.g. stamp duty etc in the capital gains calcis to help reduce the gains ?

    I am assuming that I can't as I lived in it for 1 year and it was my PPR.

    However, I am hoping that I can !!


    Does anyone know ?

    Thanks.
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    You are able to vacate your PPOR and rent out for up to 6 years without CGT applying at your election.

    Cheers,

    Rob
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    ... assuming you don't subsequently have a new PPOR that you are claiming CGT exemption on.
     
  4. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    I am not an accountant but from what I know and
    assuming that you are not claiming PPOR exemption for another property
    you could consider it as your PPOR and would not need to pay CGT
    therefore the purchasing expenses are irrelevant.

    However, if you are claiming another property as your PPOR for the same period then in my opinion you would not be able to add the purchasing costs because you've bought the property for to live in.

    In such a case CGT will start counting from the day you moved out so hopefully you would have done a valuation at that time otherwise you would need to employ a professional to work out the approximate value for you.

    Cheers
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    Except that it was originally an IP before it became a PPOR ... the original question is not so much about after they moved out, but about claiming the up-front costs to offset that portion of the CGT owed for the first few months that it was rented out.
     
  6. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    Exempt for up to 6 years at your election.

    If you do not elect and your property would have been 100% exempt at the time you first used it for assessable income then use the market value.

    This is because s.118-192 deems the dwelling to have been acquired at that time for market value.

    In other words no inclusion of stamp duty and I hope the improvements didn't over-capitalise and are reflected in that value.

    Why the delay in occupying ? Was it an IP initially for a short period (e.g. existing tenant) ? This could change things significantly.

    It all depends on specific details, so check with your Accountant.

    Cheers,

    Rob
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    If I read the original post correctly, yes:

    "Now I assume I need to determine the value of the property in Jan 2002 when first rented for capital gains purposes."
     
  8. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    If not fully exempt at the time it was vacated then market value does not apply.

    e.g. if it was initially an IP.

    Then add up all non-deductible costs of ownership and acquisition for cost base and apportion CGT on a time basis between an IP and a PPOR.

    If the 6 year absence rule is not used, then this includes the period after vacating.

    Cheers,

    Rob
     
  9. katz

    katz New Member

    Joined:
    20th Sep, 2007
    Posts:
    4
    Location:
    Brisbane
    Thanks everyone.

    Just to clarify I cannot claim the 6yr exemption as I brought another property to move when rented out the unit.

    So initially it was my PPOR - 1 year.

    Then it was rented - nearly 4 years. During this time I had another property that was my PPOR.


    I think the answer this that

    a) The valuation is at time of moving out (Jan 2003) and

    b) I cannot offset any of the purchase costs (stamp duty etc) as I had lived in it as my PPOR before renting it out

    Thanks again.
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    You do actually get to choose which one is to be considered your PPOR.

    You could instead claim the first property as your PPOR for the 4 years after you moved out - but that means you can't claim a CGT exemption for the first 4 years on your new property when you sell (this is the key - it only applies when you sell, and so may be a trivial amount in 20-30 years time if you hold for that long).

    You would need to work out the value of your current place as of Oct 2007 (actually - for CGT purposes, you use the contract date, not settlement date!), and then you calculate the change in value from when you purchased it to the contract date on the sale of your first property, and keep that information for the future when you go to sell your current PPOR.

    The question will be - is it going to be worth while? You'd have to do the sums ... and I strongly suggest you get an accountant to help you work it all out to make sure you're not going to get any nasty surprises from the tax office in the future - especially since you don't have sworn valuations to back up your calculations.
     
  11. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi Katz,

    Two quick questions...

    1. Were you employed for the same year as you had the capital gain?
    2. How much of your assessable income (%) is from employment?

    Cheers,

    Dan