PPOR capital gains tax? Help!

Hi everyone,

I have 2 IP's. One was originally my PPOR. I lived in it for 2 years but have since moved and have now been renting it out for the past 3 years.

First question is: I have heard that I can live out of my PPOR for 6 years before I start paying CGT? Is this correct? If I move back in, renovate then sell, would I avoid the dreaded CGT? ( i know I know, if I'm paying tax I'm making money)

2nd question. Should I do subtle renos on it with a tenant in it, increasing my chances of getting more rent and claiming it as maintenance or should I do renos just before I sell. Can I deduct these costs from my CGT?

3rd. I have both my IO loans with offset accounts and the ability to juggle money between them. Is it more beneficial running one at more of a loss than the other?

I sort of rushed in to buying these properties, without doing my research first, so for anyone looking into buying property, definitely read up and do some research. It will help in the long run! And don't get sucked into the negative gearing monster before you properly understand exactly how it works

Thanks for your help

Dave Mc

 

Hi Dave

1. 6 year rule is at s 118-145 ITAA 1997.
If you move back in within 6 years then you could possibly avoid CGT.
If you move back in after 6 years then CGT will apply. But only from the 6 year period onwards.

2. Renos and other expenses will come off the cost base and help reduce CGT if payable - actually the renos will hopefully increase the value so CGT may not be reduced, but your deductions will.

3. If the same owners own 2 properties then using an offset on one or both should have virtually the same result overall.

 

Thanks Terry

Is the CGT calculated on my original purchase price or does it take into account the increase in value. What I'm trying to get at is should I get it valued at the 6 year mark so they use this for my capital gains calculation?

Cheers

Dave

 

The CGT would be calculated on the 6 year mark onwards. So you should get a value as of the 6 year mark.

 

Dave,
Terry answered your questions and what I can add is a little clarification that may help.

The renovation/maintenance issue needs to be considered, a relacement like for like cost may be able to claim against current income or if it is an improvement then in theory it needs to be capitalised. It is about timing, repair/maintenance costs can be claimed in the financial year incurred, improvements/renovations can be added to your cost base in calculating potential capital gains. Which will be of greater benefit for you?

The 2 offset accounts, use your offset agsainst whichever loan has the higher interest rate. If they are both the same, it does not matter as Terry said.

I agree with the need for research but more importantly is having a loan term plan and goal. If a property is purchased with this in mind, you are three quarters of the way there. The only reason you would consider properties where rental income does not cover after tax costs is the potential for greater capital growth, increased rental income over time due to supply and demand or the opportunity to add value.

If you have negatively geared properties, you certainly need a plan to support the cash flow requirements as well as having a cash buffer and risk insurance in place.
Good luck
Greg

 

Hi Greg,


Yeah my plan is to get both properties to pretty much neutral which I am close to achieving. The one that used to be my PPOR, I was thinking of doing some small works to it, claiming as maintenance and then when I get it valued before my 6 years runs out, it is included in my base, enjoying both benefits? Sounds dodgy though!

I have heard some people get their PPOR valued as soon as they moved out but I didn't do this. Not sure if it will end up biting me in the arse!!

Thanks

Dave