Capital Gains Tax and Buying a Property That's Currently Tenanted - SOS

• 

  toniyellow on 28/02/2017 - 23:46

  -1

  Offer the tenants money to move out early

  Otherwise yes CGT applies
  https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…

  • 

    mskeggs on 01/03/2017 - 00:02

    -2

    This is not correct.
    There is a transition period of up to six years while you move in and out of principle places of residence:
    https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…

    You can be vacant for a total period of six years before CGT applies, but not 3 months now plus 6 years later.

    • 

      djkelly69 on 01/03/2017 - 00:09

      +1

      Arent you assuming OP currently owns a home in that scenario? I get the feeling he/she is buying for the first time.

      • 

        mskeggs on 01/03/2017 - 00:26

        -2

        The day they complete they will own it, then whether they move in and out every week doesn't matter as long as they don't total over 6 years.
        Like many examples on the ATO site, they are silent on the usual arrangements and just give examples of less common.
        I have personally relied on this interpretation twice, with the full endorsement of my tax accountant without any hesitation that it might be in any way questionable. But I haven't been audited about it.

        But I'm just some guy on the Internet, so make your own inquiries. They will say you can be absent up to 6 years.

      • 

        djkelly69 on 01/03/2017 - 00:42

        +1

        @mskeggs: Fair enough.

        To me being 'absent' from a property implies you have lived there first and then moved out, which OP can't/won't. But as you say, the ATO site is not particularly clear.

      • 

        mskeggs on 01/03/2017 - 09:09

        +2

        @djkelly69:
        Better link, that explicitly covers this situation:
        https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…

        This suggests you may be liable:

        If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest.

        But it isn't clear to me if this is relating to the trying to claim the exemption to own two properties at once, or would cover a first home buyer too.

        Give them a call:

        For help applying this to your own situation, phone 13 28 61

• 

  djkelly69 on 01/03/2017 - 00:07

  +1

  From what I understand, if I moved in immediately, I'd be exempt for CGT for 6 years.

  Your main residence is almost always exempt from CGT

  I am not 100% sure on the answer, but I think this is the page you are looking for here.

  So according to that, say you own it for 10 years and live there yourself for all except the first 3 months, and sell it for a $200k gain in total. You would only pay CGT on a very small fraction, eg 200,000*(90/3650) = $4932 capital gain. Which is not a lot to be worried about. And may also get the 50% discount for holding the asset over 12 months on that?

  I think tax professional is the answer.

  Or only put in an offer for the property on the basis that you don't settle until the Vendor provides vacant possession (might be able to give 8 weeks notice, otherwise settle in 3 months time when the tenant is out), and then you dont have to worry about any of this.

• 

  spal on 01/03/2017 - 04:59

  +1

  You raise a number of questions here, so your simple issue's answer is complex.
  First, Principal place of residence (PPR) exemption and tax issues apply only from the date you own the property. In your case after auction you can negotiate 3 months transfer, or even put vacant possession as a special clause in your contract of sale. So you can then move in right after the transfer of the property to your name.
  On the other hand assuming that you don't receive vacant possession, and the tenants live for another month then the property will be your PPR and capital gains exempt only from the time you move in. This would mean that you would potentially have to pay capital gains tax if and when you sell. However in order to pay capital gains tax you need to make a gain when the property was being used for income producing purpose by you. In your case, if it is rented out for one month then your capital gain will be your cost base (purchase price plus few other things) and your capital earning would be the value of the property at the time the property stops being available for income producing purpose.
  You can ask a real estate agent to do a property value appraisal when you commence occupying the property as your PPR.

  Regarding other issues of 6 years absence, this is called temporary absence. This is not applicable to you in your current state. You need to first establish a PPR before you claim temporary absence from it. Mind you if you ever were to move out in future, temporary absence provisions for state taxes ( land tax and stamp duty) are not as liberal and require you to physically occupy as your PPR, or after establishing a PPR, not rent the property in order to claim their exemption. Make sure you check with your state tax office too .

• 

  CheapskateQueen on 02/03/2017 - 09:03

  Technically the property needs to be your home first to get the exemption, but mate it's 3 months in the scheme of a lifetime. Don't worry about it.