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CGT on investment home

Discussion in 'Accounting, Tax & Legal' started by robman80, 24th Jun, 2009.

  1. robman80

    robman80 New Member

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    mount gambier, SA
    Hi everyone, I have a question regarding CGT. I built my house 4 years ago and currently live in it. 2 years ago i also bought an investment home that has always been rented out. I plan now to rent the house i currently live in and move into my investment home and make that my principle residence. if i plan to sell my newly rented home in a years time, how much CGT if any do i need to pay on it percentage wise?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    You can choose which property is to be considered as your principal residence for CGT purposes - although which you should choose will depend on the circumstances.

    For example: after you move out of your current principal residence, you can choose to continue holding that as your principal residence for CGT purposes for up to 6 years after you move out. This will allow you to sell it CGT free.

    This does mean that your investment property will continue to accrue CGT liability for the additional period until you sell the other property (or choose to change which is your principal residence).

    Which option is better largely depends on your current tax situation - do you have existing capital losses carried forward which you can use to offset against a capital gain? Another consideration is which property is likely to accrue the largest capital gain in the time it takes you to sell the property.

    Hope this helps a bit - you do have some flexibility here.
     
  3. jrc

    jrc Active Member

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    If you follow Sim's option of maintaining your existing PPOR as your PPOR when you move into your IP, then the expenses you have on your IP while you are living in it eg rates, interest, insurance, repairs, mower fuel, lightbulbs get added on to your cost base for the IP

    In my case we have a PPOR we lived in for 2 years and renovated and have rented out. The current valuation is quite close to our cost plus renovations.
    If we buy another house to live in and declare that to be our PPOR and make house no 1 an IP then the value of house 1 for CGT purposes starts at its current valuation.

    On the other hand we can maintain house 1 as our PPOR for up to 6 years from when it was first rented out and be exempt from CGT.

    Then with house 2 we can add to the cost base interest, insurance, rates, repairs and maintenance so on borrowing of 300K at 6.5% we would be able to add say $19500 pa for interest, $2K for rates, $1K for insurance etc to cost base or about 7% p.a of the purchase price of the house, thus minimising any CGT.
     
  4. danrts

    danrts Member

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    does that mean you can move out of your PPOR and start renting it out and for 6 years be CGT exempt on that property? (provided you don't have another PPOR (ie you start renting elsewhere rather than buying another PPOR).
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    This is exactly what it means. We did that ourselves - bought a PPOR but then moved interstate with work and rented. We made our ex-PPOR into an IP and were able to sell it 6 years later CGT-free.
     
  6. danrts

    danrts Member

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    does it mean i can claim the expenses with running my PPOR that I'm now going to be renting out, as a tax deduction, too? rates etc and still be CGT free if I sell it in the future?
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yes, provided the property is available for rent, you can claim all normal expenses for an IP without impacting on the CGT status.