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? re principal place of residence and joint tenants/tenants in common & tax etc

Discussion in 'Real Estate' started by JT97, 7th Jul, 2012.

  1. JT97

    JT97 New Member

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    Tas
    Hi, I am new to the forum and forum posting and finance in general.

    I was renting interstate (where I have lived all my life) but also renting in another state because I have permanent employment there. I have been commuting between the two every few months. I'm giving up the rental in my home state but ultimately had wanted to keep that state registered as where I live for voting etc. My family live in that state so I had put that address as the one where I will be living.

    Instead of renting in the state where I work, I have decided to buy a house (not first home) to live in for when I am at work. I may want to remodel the new house so that it has a self contained bedsit for a relative when they visit and, possibly rent out short term in between to get some extra income.

    From purely the best financial perspective I dont know whether to:
    1) record the new house as the principal place of residence. Is that even possible if I want my interstate address as the electoral one? Can that be done if I remodel and rent the bedsit (or will any fees/taxes be likely to be more than any income?)
    2) whether to register with my partner as joint tenants or tenants in common. I earn in the higher $80sk but partner won't have an income for the 2012-13 financial year except for a lump sum super payment (a few hundred k to buy the house).

    Once done for purchase, can these be changed later?

    thanks for your thoughts
     
    Last edited by a moderator: 8th Jul, 2012
  2. Terryw

    Terryw Well-Known Member

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    You don't need to register a place as your principal residence.

    But if you are living there you may qualify for benefits such as the house being CGT free when you sell. If you rent all or part you may not get this - but you could still qualify under a temporary absence from your main residence.

    You may actually need to register with the OSR in the state of the property that you are living there as this could result in land tax savings.

    Voting etc - you need to register the address where you are living.
     
  3. Terryw

    Terryw Well-Known Member

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    tenants in common or joint tenants cannot be changed after settlement easily. And there are large estate planning consequences.

    If a TIC party dies they can leave their share of the property to anyone.
    If a JT party dies their share automatically goes to the survivor and by passes the will. In some states this gives greater control if the will could be challenged.
     
  4. JT97

    JT97 New Member

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    Thanks Terry.

    That is some help but I am still a bit unsure..

    I can cover any will issues and expect to continue to commute to interstate address at least a few times each year and we'll probably base retirement there down the track.

    But I am not sure even what rough figures are for state taxes or capital gains and how it all works. I tried the ATO site but couldn't figure it out.

    So can I ask your help with a hypothetical scenario just to give me and idea of how it works? Let's say:

    - Party 1 $340k taken from super to cover house and renovation in a year where there is no other income. $15k of that lost in tax because under 60yrs.
    - Party 2 (partner) earns $90k that year with practically no tax deductions
    - Party 1 has about $50k in bank getting maybe 5% interest but neither have any other assests except reasonable super not be be accessed until both retired (maybe 10 ys down track)
    - Renovation cost $15k -$25k and comprises about 1/4 of the house to convert for rental (value $280k before renovation and doubt renovation will increase it by much)
    - Relative stays 3 months, empty for 3 months, rented for 6 months at maybe $600/month (so maybe get $4k /yr in rental)

    What sort of $ value losses (or lack of benefit) would we be looking at in capital gains tax and anything else (I just don't know - is that $3k or $30k or more) if sold at a profit in a couple of years for $350k?
    Is it possible to claim the loss from super and/or renovation costs from either personal income tax or capital gain tax?
    What if sold in a couple of years for only $300 (or less) i.e a loss considering super and renovation expense?

    thanks
     
    Last edited by a moderator: 8th Jul, 2012
  5. Terryw

    Terryw Well-Known Member

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    Sydney
    CGT is a tax based on capital gains.

    But, it is generally exempt for main residences. However, if you are renting the house out in part then this part my be subject to CGT.

    If you are totally absent from your main residence and rent it you can still be exempt for up to 6 years on this property in some circumstances

    To work it out, you get the sale price and deduct all the costs associated such as purchase price, stamp duty, legals, agents commission etc.

    This will be the gain and it is added to your other income and you are taxed accordingly.

    But, if you hold the asset for more than 12 months then you get a 50% discount, so only half of the gain less deductions is added to your income. The max tax you would then pay is about 23%.