Hello,
I bought a investment apartment 3 years ago but did not move into it and claim it as my principal place of residence. However, I have no other principal place of residence as Im still living at home. Is there any way I can claim the apartment as my principal place of residence?
Thanks for your help.
Not sure what you are asking?
wants to know how they can claim apartment they have owned for 3 years, but do not live in as their principle place of residence, while they still live at 'home' (i assume with parent)
Why would they want to do that? for the purposes of capital gains exemption during a sale?
Pretty much, yes
Yeah I do have a tenant in there but I didn't think of moving into it when I first bought it.
How long has tennant been in there out if the 3 years?
the whole time
Have you shown rental income in your tax return? if so, you cannot claim it as a PPR and void paying capital gains if you profit on the sale.
The answer is no.
But once you move in, it becomes PPR and you only pay capital gains tax on the proportion of time it was investment.
I bought a investment apartment 3 years ago but did not move into it
Since you're deriving an income from the property by renting it out, that means it isn't your permanent residence, which means if you sold it now you would have to pay capital gains tax. As mentioned above by wei13, if you were now to move into your apartment you would only pay capital gains on the percentage of the time that it's been rented out. For example you move in now and live in your apartment as your primary residence for the next 7 years - you decide to sell the apartment after you've owned it for 10 years. If you were subject to capital gains tax you would be taxed at let's say $20,000 but you only rented it out for 3/10 years so you would only have to pay 30% of the capital gains tax otherwise i.e. you would be exempt from capital gains tax of $14,000.
If I was to move in now, is there any point in doing a property valuation since capital growth has pretty much leveled off now and unlikely to increase?
It won't matter what the property is valued at the moment, the government just takes an average growth from the purchase and sold price.
I would have thought valuation would have mattered especially if you know the property price will increase in the future. e.g. If I bought the property for $1 and I rented it out and it is now valued at $3 when I move into it myself. However, in the future when I sell the property it is $6, could I not argue the capital gain portion should only be ($3 - $1). Isn't that why advisers always say you should get the property valued if it was previously rented out and now you want to move into it and have it as your principal place of residence and/or the other way around when it was your principal place of residence but now you want to rent it out.
@jche6075: the capital gains will be $5 in your example and you'll pay tax on the proportion of the time you had a tenant in it. Doesn't matter what it was valued at when you moved in or when the tenant moved in.
@jche6075: In a perfect world that would make sense but unfortunately a valuation report is highly subjective and it doesn't hold much credit. I don't know where you heard:
Isn't that why advisers always say you should get the property valued if it was previously rented out and now you want to move into it and have it as your principal place of residence and/or the other way around when it was your principal place of residence but now you want to rent it out
It would make sense the other way around if you're getting it valued so that you can get an accurate rental price estimate (if you're wanting to rent). It won't affect CGT though I would say that this falls in your favour given that you have said
capital growth has pretty much leveled off now and unlikely to increase?
That would mean most of your growth has been during the rental period and that you don't expect much growth from here on out, which means your growth would be spread over a longer period instead of just the past 3 years.
@Pixel: I've had a few people tell me I should get valuations done if the intention of the property changes. It didn't make sense to me either because CGT is always sales proceeds minus cost base.
@jche6075: I mean it's probably useful information for you and it doesn't cost anything (just time) so I can see why people in general say it's good to get valuations done here and there.
@Pixel: Yeah but these people were saying to get valuations done to maximise CGT exemption so that didn't make sense.
Say I had 2 rental properties and it didn't matter which one I move into as my principal place of residence, would it make more sense to move into the more expensive one in terms of minimising the tax I pay when I sell it?
@jche6075: If you had 2 rental properties where you personally had no preference for which one you moved into then you should move into the one that doesn't generate as much income - whether through rent or capital gains. From a minimising tax point of view - to minimise the tax that you pay you would move into the one that has the most potential for growth but this is how tax works, it takes a proportion of anything that you would've made on top of it so you're better off moving into the less growth-potential one and just paying more tax because in absolute terms you come out better.
Your capital gain is calculated on the salw price not the valuation
i think the OP may be alluding to the "6 year rule" which allows you to continue to treat your main residence as your main residence (for capital gains tax purposes) even tho you rent it out for up to 6 years, without losing the "main residence exemption". i.e. you live in it for 5 years, you move out and rent it out for 5 years, and move back in or sell it - so long as you don't have another main residence, the main residence exemption still applies so its cgt free.
the problem for you OP, is that you never lived in it to begin with so you're kinda screwed.
Had you lived in it first when you bought it and treated it as your home, and then rented it out, you couldve gone CGT free since it's been less than 6 years.
As it stands now, you could never satisfy that requirement since it was an investment property from the get go.
if you move in it now, and live in it until you sell it, you are taxed on the proportion of gain based on a "number of days calculation" based on your investment/home ratio.
if you move in it now, live in it for a year, then lease it for 5 years, you can still treat it as your main residence from the date you moved back in. (but not the first 3 years that it was leased. that is forever and always your investment period)
Yeah I did think about this rule as well but forgot how it worked.
For a recent article about CGT, rent, and short term rental written by an accounting company, read https://bantacs.com.au/Jblog/the-tax-and-record-keeping-cons…. It discusses the 6 year rule and how to ensure it is used correctly.
only from the day you move in, maybe with the exception an existing tenant had a lease waiting to expire.
in your case no.
you can move in for 12 months, then move out for up to 6 years. I would do this.
CGT is pro-rated, so if you lived in it for 2 years from today and sold you would pay CGT on 50% of it pro rated at 60% at you applicable tax bracket the year of the CGT event.
If you do not live there but claim it as PPR, you commit tax fraud and the ATO will fry your a.. when they find out.
Not worth it. Come clean and self report, and move into your place and then do it properly.
There is actually a cost base resetting rule to market value but under s 118-192 but that is only relevant if it was your principal place of res and now you are renting out but not the other way around in my case.
yes, move into it and live there.
otherwise i guess you could just lie and say you live there - may get in trouble for that (not sure as i am not a lawyer).