Move from Principal Place of Residence into New House That I Buy

Hi, this is just a question. I will get financial advice before I…

Own a house (20 years). Will buy a second house and move into it.

Will rent out my current house for 5 years and then sell it.

What happens with the new house when I sell it? Do I have to pay full CGT or ???

Comments

  •  

    At worst you will be liable for a CGT on the portion of the time it was not a PPOR.

    Ie 5 years of 25 years of ownership less 50% CGT discount.

    You could try to invoke the CGT 6 year rule.

    https://duotax.com.au/capital-gains-tax-property/

    • +1 vote

      6 year rule doesn’t apply if you buy another property and live in it

  •  

    Your current house - you should do a valuation, as the CGT would be calculated from the day you move out until the day you sell it.

  •  

    Your advisor will confirm but:

    1. You can only have one Primary Place of Residence (PPR) at a time
    2. You can nominate which place is your PPR
    3. The 'six year rule' for renting ties in with PPR, theroetically old place should be able to continue same PPR nomination and be sold without CGT issue
    4. That means first 5 years of ownership of your new place will NOT have PPR nomination on it. Then, after selling old home, you move PPR nomination to new home.
    5. If you sold your new home 2 years after that point in time, you would calculate CGT on the entire disposal and 5/7ths of that amount would be assessable income [5 non-PPR years in new house / 7 years total ownership]. The 50% CGT discount for >12 months ownership would apply as well.
    • -2 votes

      I don’t think that’s correct.
      The new home becomes the PPR the minute you move your possessions into it, receive mail there, connect utilities etc.
      You don’t get to nominate which property is your PPR. The ATO does that based on what is your main residence.
      The only time you are allowed to claim two PPR is when you buy a new home before selling the old one and there is a 6 month limit on that and neither property can be used to derive an income.

  •  

    To answer your original question.
    You can either do what SF3 said and get the old property valued before you rent it out and use that as a cost base or what tsunamisurfer said, apportion the time it was used as investment against the total period of ownership

    • -1 vote

      "Updating" your cost base for market value on the date you moved out is entirely incorrect.
      Stop talking about things that you don't know about. If there's a rule that would permit this, post it.

      •  

        OMG
        https://www.ato.gov.au/General/Capital-gains-tax/Your-home-a...

        Example: Home becomes a rental property
        Erin bought a house in July 2000 for $280,000. The house was her main residence until she moved into a new house on 1 August 2003. On 2 August 2003, she began renting out the old house. At that time, the market value of the old house was $450,000.

        Erin did not want to treat the old house as her main residence under the ‘continuing main residence status after moving out’ rule as she wanted the new house to be treated as her main residence from the date she moved into it.

        On 14 April 2020, Erin sold the old house for $696,000. Erin is taken to have acquired the old house for $450,000 on 2 August 2003 and calculates her taxable capital gain to be $246,000.

        • +1 vote

          Guess it also depends on what OP intends to do with the new house.

          Getting tax advice from OzB. Bounds to save $69 but might lose thousands in tax to the ATO.

  •  

    Thanks for the comments.

    I believe Crowreally is correct.

    Just needed some 'crowd brain storming'.

    Thanks everyone.

    • -1 vote

      No worries - though like I said to start with, I defer to whatever the advisor suggests.

      To make the example easier to visualise when discussing it with them, you might want to represent the concepts visually - draw a long line on a piece of paper and label it with a few years, then above it draw a line showing when the original house will be owned and then above that another line when the new house is bought - it shows the overlap of ownership, you can scribble a few values on there [original price]