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PPOR, CGT and Defacto Issues

Discussion in 'Accounting, Tax & Legal' started by DaveA, 21st Feb, 2007.

  1. DaveA

    DaveA Well-Known Member

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    Hi Guys, im pretty new here but have been through a lot of posts and read them all, theres alot of very knowledgable people here so ill thank you all in advance for the tips ill recieve.

    I have a senario which im not to sure how it would play out legally.

    I have bought a property and it is my PPOR and have lived in it to recieve the FHOG (so satisfied the 6 month clause), now say if i wanted to move out with my girlfriend and rent an appartment (and lease mine out) in the same suburb could i still claim the PPOR? Id prefer to move into a different property as it takes the emotional part of it and its seen as our property not mine.

    Now im pretty sure i can claim PPOR for 6 years in the above situation. However if my girlfriend has the same situation and we move in together then would both of us be allowed to have PPOR at the propertys we own, or are you only allowed one PPOR per couple.

    I guess if that is the case, when do you become a defacto in a relationship. I was reading an act somewhere and i think its pretty much 'percieved' when you move in together your defacto.

    Im thinking it could be a fairly tricky situation so opinions will vary buti just want some general advice and wont rely on anything.

    Thanks for anyones help
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    This is a tricky one ... but I suspect you are correct in your analysis.

    I had a quick look on the ATO website but couldn't find the exact answer I was looking for.

    You would need to check with the ATO to make sure, but I'm pretty sure that the ATO considers defacto relationships to be those which follow the "duck" test (that is: if it looks like a duck, walks like a duck, and sounds like a duck, it probably IS a duck). So, if you are living together in the same way a married couple would, that is a defacto relationship, which is given much the same consideration as marriage.

    Here is one quote I found on the ATO site: "de facto spouse would mean a person who is living with a person of the opposite sex, to whom he or she is not legally married, in a relationship that is a marriage-like relationship"

    So in this light - I suspect you would not have much success trying to maintain two separate main residences (PPORs) when living together in a defacto relationship.

    I'll see if Nick can add anything.
     
  3. DaveA

    DaveA Well-Known Member

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    i do like the duck test... it just seems so stupid...

    id imagine yes only one could claim the exemption but i guess its worth a shot

    id imagine if it was allowed it could get court under the part IV A as a tax avoidence scheme... maybe a private ruling would be good, but can you get a private rulling for something that hasnt happened yet?
     
  4. Simon

    Simon Well-Known Member

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    You can certainly run them both as IP's.

    You will probably only be able to claim the CGT exemption for the first 6 years on just one of them.

    Is it really vital for your emotional wellbeing that you cannot occupy one of your existing homes?

    Worst case is that one of the properties only enjoys a 50% CGT exemption... not the end of the world.

    and this 50% CGT is only triggered if you do sell...

    Perhaps consider choosing your partners property to miss the exemption. Then if she should leave work for family reasons you could sell then (if you had to) and pay the CGT on a lower tax bracket plus realise the profit when perhaps you most need it.

    I am an advocate of the buy and hold strategy myself so CGT exemptions don't matter too much to me!!
     
  5. DaveA

    DaveA Well-Known Member

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    no not at all...

    this is only forward planing on my behalf, the event hasnt even happened yet...

    both me and my girlfriend plan to buy seperate PPOR and recieve the First home owners grant for both of them (as at this stage we wont be defacto and will be entiled to it), both these will probably be located in Pyrmont or very inner west to Sydney, if we rented it would be the same suburbs due to working in the city

    thinking outside the square, if i could keep both of them CGT exempt its a better tax situation... coz say we sell in the 6th year on both of them, We get to claim depreciation for 5 years on the asset as well as the usual property benefits which are usually deducted from the capital value when paying CGT, this way would mean you could write off the depreciation and then walk away with a capital gain value... (with out doing the maths, any tax deductions we recieved from the propertys would probably pay close to the rent anyway)

    If it works then well rent a seperate appartment, if it doesnt work then well live in one and use the other as a IP
     
  6. NickM

    NickM Co-founder Staff Member

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    Speaking as a true accountant, surely Dave you cannot be considring living together in the same room ! One would assume when you are renting that you will occupy separate bedrooms.
    The CGT 6 year exemption election only needs to be made when the property is sold. At that point you would need to look at your situation.
    NickM
     
  7. DaveA

    DaveA Well-Known Member

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    could you just explain this a little bit more nick, would it mean it would be ok if we were renting a 2 bed apartment and still have finances etc to not be defacto?? if we remaind in non defacto then the 2 seperate PPOR would be ok

    i would imagine that we wouldnt end up renting at all so i wouldnt need to make the decission at all ...

    i would imagine our finances would be tangled up by that stage so we would be truely defacto so hence there is no tax benefits to be claimed...

    i just have a bit of spear time now until uni goes back next week so im just doing some forward planing and this website is being great for that...

    cheers guys