The QUICK question thread.....
- Thread starter Minlak
- Start date
Squidfayce
Eats Squid
yes technically, but...be smart
You can use the 6 year rule to claim the old house you moved out of as the PPOR for up to 6 years of time and pay zero CGT, even if you rented it out. The six year rule also doesn't have to apply to consecutive years. So if you move back into it, you can spread that 6 years out for quite a long time.
Treating former home as main residence
How the CGT main residence exemption works if you move out and use the 6-year rule when renting out your former home.
You're welcome.
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pink poodle
気が狂っている男
Don't forget to weigh up the CGT possibilities against potential deductions not yet claimed from hose years as a rental. While not paying any CGT is a good thing, you may have more $$$ tied up in the unclaimed.
Squidfayce
Eats Squid
those two situations/events should be treated separately. The deductions associated with maintaining an investment are counted against your taxable income, where as CG is an event where the tax is applied against the difference in value between the cost base and the sale price, which can be avoided entirely while still claiming deductions against your income. You get to double dip here.
indica
Serial flasher
I read that but was unsure of some details.
The ATO website is confusing.
this bit
- You can't treat any other property as your main residence (except for up to 6 months if you are moving house).
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Squidfayce
Eats Squid
sure. Just remember that anything the ATO omits works in your favour
Squidfayce
Eats Squid
Just spotted this edit, so will answer here.
Keen eye. Good on you.
So what this is saying is that if you claim a main residence exemption on the old property, you can't claim the main residence exemption on the new property for that period. So you're basically shifting your exemption from one property to another for the period.
Both your properties have had some CG over the 18 months. You need to have a think about and plot out the trajectory of your new home. Is it a forever home, is it an interim step before your forever home, which property has had the bigger CG in the 18 months, do you want more cash flow now, or when/if you sell the new place, are you ever going to sell the new place etc.
There's lots of variables.
However the correct approach is varied. If the new place is your forever home, take the 6 year rule and don't pay CGT on the old place as you'll never be liable for the 18month "non exempt" period on the new place.
If it is an interim home, you plan to move it on in a few years and the GC was greater on the new place, you may wish to pay the CGT onthe old property to circumvent a bigger tax chunk down the road on the new place. Or vice versa.
You may have need for the cash flow today, rather than when you sell your new home down the track and pay the premium for the access to funds now - there is a potential for lost opportunity cost if you had say wanted to invest the funds rather thN using them to pay a tax etc.
The approach I've taken, is the new place I built, I over capitalised significantly so that the CG of the next few years doesn't catch up to the market value as its a long term home. I'm basically gaming a situation where I can take the six year rule and have negligabl3 CG on the new place over the first few years, limiting the tax on the early part of the second CG event. Given the market conditions, I'm laughing.
However it is worth noting that the tax office has a short memory. It only expects you to keep records for several years, as such its a fair assumption that their records are time limited also (even though its technically not true, they have everything forever). So even though you can't technically claim the main residence exemption on two properties for the 18month period, depending on when you dispose of the new place (ie if you do so in 10-15 years), you sort of can. The ATO wont be cross referencing data for 10-15 years ago. The "oops it was 10 years ago" excuse will get you off the hook without any penalties or fines and is a legitimTe excuse if youre ever questioned. They dont have the computing power to even cross reference everyone's current records for the last year, which is why they do targeted reviews each year they give you fair warning about. Disclaimer, this is not advice and I am not advocating tax fraud, just hilighting how the system works and how some people abuse it to their advantage.
Hope that covers the question. In anycase, if you're not 100% sure, I'd see a tax accountant and have a chat.
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pink poodle
気が狂っている男
You have maintenance and capital expenses. the cost t maintain the property is written off annually. The capital expenses are the ones you write off against the capital gain. I am suggesting that writing them off against the gross capital gain may be of greater benefit (perhaps you can generate a carry forward loss) than the 6 year rule. But they may not be... thus my recommendation to consider each before lodging. I may have the wrong terms there, but you get my gist.
But also yes - the double dip is a wonderful thing.
Flow-Rider
Burner
Anything you add to improve a property is capital loss, even sometimes when it replaces something broken.
pink poodle
気が狂っている男
Triple dip!
Flow-Rider
Burner
I think there's more than triple dip, but generally not all at the same time. You could have a singular job which different parts of that job would fit in under different sub categories. Some things you could claim straight away, others depreciate over years and others get dealt with when you sell, even accountants argue over it. Typical ATO stuff.
Squidfayce
Eats Squid
Capital expenses are added to the cost base reducing the overall CG. Same net effect to what youre talking about. HOWEVER, when you're applying for a main residence CGT exemption, it doesn't really matter if your CG is $100k or $1M, so adding your Capital expenses to a cost base isn't going to change anything in that equation. Where it is relevant is when you're disposing of property that you aren't or cant claim a main residence exemption on. In most normal use cases your main residence CGT exemption is going to overshadow your capital expenses by some order of magnitude (like indicas 12 year hold). If we were talking about a 1 year flip in a declining market you'd probably be right on, a 1 year flip 12 months ago with a 20-40% CG, perhaps less so.
Tax rules being static but their outcome varying significantly based on the tides doesn't help in making this shit easy to follow.
pink poodle
気が狂っている男
I saw tonight that vibe ripened tomatoes were $2.80 per kilo. I have purchased them.
Squidfayce
Eats Squid
HODL
The Duckmeister
Has a juicy midrange
What devilry is this?
Oddjob
Merry fucking Xmas to you assholes
Hehehe I'm not sure that would protect you from the courts. The tax record keeping period is 7 years, but there is no time limit for criminal offences.
Worth noting that you can rely on advice of registered tax agent or financial adviser as a defence in court.
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pink poodle
気が狂っている男
pink poodle
気が狂っている男
Squidfayce
Eats Squid
Yeah of course, but when doing your own taxes you can get away with quite a bit and not being a tax professional gives you quite the credibility when it comes to the "whoops, I didn't know, the website was confusing, I thought I was doing it right, no biggie, here's your money back" excuse
Any tax accountant you rely on, in more cases than not, will be ultra conservative to cover themselves.
What I'm saying is it's highly unlikely a case would be brought to court unless you persisted in fighting the whoopsie. Know when you're got.
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