Join our investing community

PPOR, CGT & a development

Discussion in 'Accounting, Tax & Legal' started by DaveA, 23rd Mar, 2007.

  1. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    If i was to buy a PPOR (either DA approved or not da approved), live in it to satisfy the PPOR test and then move out and rent a property (6 year rule) and develop the property, how would this be treated for CG?

    Once developed id move back in to satisfy the PPOR test again and then sell the propertys. The only issue id guess id have is the 2nd property (if duplex built) as i couldnt live in both. But say i did not rent the property before the sale?

    Would this transaction be CG exempt or would anyway have any idea how this would be treated for tax?

    It seems to be a nice way around CGT however maybe i havent considered everything

    Cheers
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    You can only ever count one PPOR as CGT free (except in certain circumstances when having a house built).

    If what you built was a duplex, you wouldn't be able to count both either way - even if you sold one before moving back in, you would get charged CGT on the sale proceeds.
     
  3. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    so i do wonder how you value the CG then, as there would be no cost base...

    i imagined the one only, but i guess you could elect the one you sell as ur PPOR (less CGT) and the one you keep to rent out (as not) so the CGT is delayed until you sell that property...
     
  4. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    I think you'd need a valuation of the property pre subdivision and then it would be perhaps reasonable to apportion say a 50% value if it's a duplex post subdivision.

    That would be your starting point I think...but Nick can give a more detailed response. Also there'd be GST issues but you could perhaps take advantage of the GST margin scheme so that it was valued as at mid 2000 for GST purposes...

    Get some good advice about this...it's complex.

    Cheers
    N.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    ... and as soon as you begin to believe you've found an easy way to avoid paying tax, you've probably missed some important steps and may be heading for some unpleasant surprises !! Like Nigel said - it's complex.
     
  6. coopranos

    coopranos Well-Known Member

    Joined:
    11th Oct, 2006
    Posts:
    498
    Location:
    Perth
    A lot of people get caught up in the idea that the ATO is a computer and cant view intention. If you honestly looked at this from the outside in at the circumstances surrounding it, would you think that any tax avoidance was going on? The ATO arent stupid, just like any other person they do have some intuition and deal with this stuff every day so know all the tricks!

    Having said that, your best case scenario on the above scenario would be 1 property claiming main residence exemption. On the other you would be up for GST plus CGT.

    The only scenario that could really work is if you add a new house onto an existing property. Move into the existing house, live in it for a while. subdivide the property (which will need to be valued to get appropriate cost bases for each new title) and get the other property built asap. Sell the existing house and move into the other one for a while, until it is legitimately classed as your main residence, then sell that one. both will get the main residence exemption if you have a valid explanation that you werent trying to dodge tax - ie when we first moved in we enjoyed the large property, but realised that it was quite difficult to maintain, so decided we would prefer a smaller property.

    Honestly though, you are better off keeping your intentions clear - let your business be your business and pay appropriate tax on it (which is pretty minimal with the 50% CGT discount anyway), and use the main residence exemption in the way it was intended. There have been a huge number of people thinking they are pretty smart over the last few years and I imagine they are going to get stung pretty badly for abusing the system - I have heard stories of people doing 6+ properties a year and claiming main residence on each of them.