Question about 2 Primary Place of Residence

funnysht on 10/11/2021 - 20:32

Hi All
Was hoping to get some information about this-

according to "https://courses.lumenlearning.com/boundless-marketing/chapter/introduction-to-social-media-and-digital-marketing/"

Of course, no one capital gains shoe fits all. If you do not rent out your PPOR after moving out of it, you may do this indefinitely and still claim a capital gains tax exemption when you sell the property. For example, you buy a property and live in it for the first year, then move out and rent somewhere while your son lives in the property free of charge.

So just wondering if someone does not rent out their PPOR 1 and move and instead of renting buy a new place- will their old PPOR 1 still be CGT free?

The 6 month rule allows one to only use the PPOR2 for 6months until then they cannot treat PPOR1 as their primary residence?
The 6 year rule would allow one to rent out PPOR 1 for a maxmium 6 years>

Thanks!

Financial

Comments

  • deme on 10/11/2021 - 20:56
    +1

    2 Primary Place of Residence

    Primary

    Our Education System has really fallen.

  • JDMcarfan on 10/11/2021 - 21:02
    +5

    Your wording could be better but my understanding of this is:

    You buy a place and live in it for the 6 months to establish it as a PPOR for CGT purposes. Then at some point later you move out and leave it vacant (hence technically enabling it to have unlimited period of CGT exemption).

    In moving out you decide to buy a new place and not rent, and also decide to not rent out PPOR1.

    In this case, PPOR1 will remain CGT-Free (if thats the property you elect to retain as your primary residence) for an indefinite period. You however, cannot have both PPOR1 and PPOR2 as CGT exempt properties (i.e. PPOR2 will receive no exemption) as that would be rorting the system and everyone who had the means to, would do so.
    There's a 6 month window as you've mentioned that allows both to be exempt purely to accommodate the practical considerations of people moving into a new house before they sell their old one, but not for it to be held long-term.

    This election however can be made at the time you want to sell either property and does not need to be made in advance (subject to both not being used for income generating purposes). Thus 10 years down the track if you want to sell either property, choose the property with the higher capital gain and reserve the election for it (i.e sell the less profitable one and dont take the discount, or sell the more profitable one and elect it). From that point forward the remaining place will be the one with the CGT exemption (can be PPOR1 or PPOR2).

    Read below for a guide with examples:
    ATO
    "you cannot treat any other property as your main residence (except for up to 6 months if you are moving house)." - the main take from it and hopefully answers your question

    • funnysht on 11/11/2021 - 09:31
      +1

      thanks thats very useful!

  • JIMB0 on 10/11/2021 - 21:05

    Now to further complicate things, can a couple have one PPOR each?

    • deme on 10/11/2021 - 21:14

      If both members of a couple each own a main residence they must either:

      select one residence for the exemption, or
      apportion the CGT exemption between the two residences.

      • JDMcarfan on 10/11/2021 - 21:18
        -1

        Or stay seperate on the books.
        I.e remain unmarried, live at seperate mailing addresses and if secretly living together and potentially renting out the other, then accepting cash rent payments (I don’t condone this strategy though) cough

        • deme on 10/11/2021 - 21:20
          +1

          What you just suggested is tax fraud and illegal, plain and simple.

          Your spouse includes another person (of any sex) who:

          you were in a relationship with that was registered under a prescribed state or territory law
          although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

          https://www.ato.gov.au/Individuals/myTax/2020/In-detail/pers…

          • JDMcarfan on 10/11/2021 - 21:24

            @deme: clearly you didn't read the sarcasm at then end of the sentence.

          • dasher86 on 10/11/2021 - 21:28

            @deme: But you didn't live with them in a domestic situation.

            • deme on 11/11/2021 - 15:32

              @dasher86: What part of "secretly living together" makes you think the Tax office will ignore it?

          • ol mate on 11/11/2021 - 09:57

            @deme: What if you're both living between the 2 properties? e.g. a week at one the next at the other, etc. ? Does that mean both would still get the main residence exemption?

            • deme on 11/11/2021 - 15:31

              @ol mate: No. You get one exemption.

  • Drakesy on 10/11/2021 - 21:05

    Welcome to Australia where CGT loopholes/tax minimisation strategies are the flavour of the month.

    You are CGT exempt as long as you don't rent out your PPOR1
    As soon as you rent out PPR1 i believe the CGT will be paid on the value change at the time of renting to the sell date (even if it is no longer rented). Correct me if i'm wrong.

    • JDMcarfan on 10/11/2021 - 21:13
      +1

      not technically,
      first point yes but as explained above only one of the properties can be CGT exempt
      second point, in this circumstance once given for rent the 6-year rule activates and works off a period of when they last resided. I.e. If they move out on 30/06/2021 then the place is CGT-exempt until 30/06/2027. Note this is only if you don't establish a main residence elsewhere, so you'd either have to rent or elect the new place to be full-CGT payable until you sell or the 6-year rule lapses (whichever comes first)

      • JDMcarfan on 11/11/2021 - 00:14
        +1

        Don’t know why I got negged for this

  • narbe on 11/11/2021 - 08:54

    This confused me as well but as others have pointed out its actually quite simple.

    You cannot have 2 PPOR for more than 6 months. (For moving purposes)

    6 year rule is only if it is 1 PPOR + renting elsewhere. ( As soon as you have bought another house it is time to choose which one)

    The end.

    • funnysht on 11/11/2021 - 09:01

      oh so if i buy instead of rent and make the new property my PPOR after 6months- what happens to the old PPOR if I sell but never have rented it out?

      • CrowReally on 11/11/2021 - 09:26
        +1

        The % of time your old property wasn't your PPOR will be CGT taxable. Renting it out or not won't affect the calc.

        • JDMcarfan on 11/11/2021 - 09:41

          ^ OP as explained above you cannot have 2 concurrent PPOR (other than the one exception above which you wont satisfy), beyond that you can keep PPOR1 as the CGT-exempt place but only at the expense of PPOR2 being fully CGT-liable (dumb move, unless its worth much less than PPOR1). Both PPOR will have the additional requirement of not being rented out or used for income producing purposes.

          Can't make it any simpler than that. Think about it this way, if what you envisage was permitted, every Dick & Harry with a small fortune in their pockets would park up every $ they have into property and leave them vacant indefinitely. There'd be no better investment vehicle really and with superb growth and all CGT being full exempt why wouldn't they. Australia would become a speculation heaven and be full of vacant properties while people would be priced out onto the streets or in shoebox apartments (Kinda like HK right now). Don't think that this would ever swing well with voter, and tbh the current allowances are already extremely generous (promoting people to live beyond their needs, in fancier/posher houses than they would ever need as they want to maximise CGT-exempt gains from their property)

          • funnysht on 11/11/2021 - 09:48

            @JDMcarfan: not everyone buys a 2nd PPOR to become a realestate magnate ….some work hard and buy it as a holiday home etc

            • JDMcarfan on 11/11/2021 - 09:59

              @funnysht: I know what you mean, and dont mean to cause any offense, I'm working to a similar goal myself. the exemption exists to prevent people from being unduly burdened with taxes when they come to sell their "home". Holiday houses/farms/paddocks/empty land is your recreational investment and not a necessity and justifiably shouldn't receive any exemption (you already get 50% CGT discount anyways if you hold more than one year).
              I was just pointing out that an exemption for what you seek would then theoretically have no limit to the no of properties, and whilst you might act with good intentions, the changing of rules like that would result in major manipulation by the more affluent / property-investment focussed

              • funnysht on 11/11/2021 - 10:06

                @JDMcarfan: ah..no i didnt take offense it was more for the general community in regards to the recent forums etc about tenants vs landlords -

                but recreational investment IMO should be CGT exempt (if you don't receive any rental out of it). e/g if i sell a car i dont need to pay cgt

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