How Do You Find Your PPOR Status? and How Long Do You Need to Occupy It?

tunzafun001 on 20/06/2022 - 14:50

Hi, I bought a Duplex 20 years ago, on one title. Since then I have lived in each side (moved sides as I rented it out for 3 years to lady who needed the disabled access bathroom). Then she moved out, had family move in and basically lived across both for about 7 years. Then renovated and moved back into the original side, then reno'd the other.

Then got it subdivided into two community titles. Had one side up for sale for a while (empty), but didnt sell. Had a work mate with nowhere to live, so let them move in for just over a year (lodging). Then they got a partner and deciced to take up next door on a rental agreement for 2 years.

Now getting some good offers to buy them. Would like to sell one currently to avoid CGT. If I can do the rental side..that would be idea. No idea which one is my PPOR (im pretty sure i had to declare one for land tax reasons). I guess the land tax office would be the go? Pretty sure its the side now rented for 2 years (not rented for 10 years before that).

My plan is to sell one as my PPOR, then live in the other for a while, then sell that under the same idea. But how long do you need between each?

I did approach two accountants in town. One was not aware of the law of 6/10ths (which i think applies here) and the other said both sides are CGT exempt and sell them both now (I dont belive this).

Cheers

Financial

Comments

  • bemybubble on 20/06/2022 - 15:06
    +2

    One was not aware of the law of 6/10ths

    Also not sure what this is - nothing in tax law for this?

    other said both sides are CGT exempt and sell them both now (I dont belive this).

    Yep don't believe it either.

    You can only have one PPOR - you can elect which means that the one you elect leaves the other, by default, as an investment.

    Where you need to sit down with someone is strategise around whether you invoke the 6 year absence rule or the market substitution rule.

    • tunzafun001 on 20/06/2022 - 15:23

      Thanks for this. I have an older document here saying the 6 year rule can only be applied once in a 10 year cycle.

      But now it looks like you could rent it for 6 years, move back in for a few months. Rent it for another 6 years (assuming you have no other PPOR in this time).

      Maybe it changed, or maybe this document is simply wrong.

      As for simply electing a property, how would this play out if I have paid land tax on it? Guess it wouldnt matter as I would have to pay land tax on one of them anyway (assuming they are valued equally) .

    • tunzafun001 on 10/03/2024 - 15:22

      Hi mate, and old thread..but I can't get a response from the ATO and I raised 4 complaints and 2 reports to the Commonwealth Ombudsman!
      Got a 'call this number' message in Nov 23. Called it…they are out of office until June 2024!

      Anyway, I have taken particular notice of your Market Substitution Rule as;

      When I first rented it, I had it valued at $187k per side. I now have a contract (all I need to do is sign) for $340k for both..so $170k each.

      So technically, the "Fairmarket valuation" is $17 000 under when I first rented it.

      ATO rules always seem to imply values go up (which they have from my initial purchase price), but have declined over a 15 yr period since first renting.

      Under the Market Substitution rule, it would seem no CG has been made?

      • bemybubble on 10/03/2024 - 18:38

        I would highly suggest you engage an accountant bud. There’s a few twists in your situation and it’s imperative that all is picked up.

        There are heaps of specialist accountants out there for this particular transaction. Heck you could even ask a tax lawyer if you really wanted

  • bemybubble on 20/06/2022 - 15:32

    Definitely never heard of such animal - is it an ATO document or from a practitioner? Curious to see it if you've got it.

    As for simply electing a property, how would this play out if I have paid land tax on it?

    Considering you'll have other evidence of you living in it I am unaware of land tax paying a part in dictating what is and isn't your PPOR. As mentioned before it's an election.

    The only thing that might happen is the ATO might data match with the SRO and the SRO then hits you with landtax for a property that wasn't your PPOR.

    Hope that helps.

  • arkie0 on 20/06/2022 - 15:55
    -4

    You need to speak to the SRO - they determine your PPOR status. Once you worked it out with them can you work out tax.

    • freefall101 on 20/06/2022 - 16:09
      +2

      Nope, the SRO determine your PPOR status for land tax under a different set of laws to the ATO determining main residence for capital gains tax.

      They're similar concepts but different laws and rules around them.

  • freefall101 on 20/06/2022 - 16:17
    +3

    This is a tricky one, prior to it being on two titles it's straight forward, the whole thing is your main residence and you're renting out part of it. The portion that you're renting out for the period it's rented out would get CGT but not the rest. Same way as renting out half the house you live in, or running a business out of it.

    After it's split in two, they become two separate CGT assets. The one you've been living in is your main residence. However while you were living across both of them… yeesh. I think technically it'd be all main residence during that time because so long as there's no business activity and it's under two hectares the ATO would count it as one property, but definitely don't quote me on that. That it's such a mix means I'm not sure if the status keeps changing or it's a main residence the whole time and you lose the CGT exemption on the rented part.

    It's one that, back in my tax days, I'd spend a couple of hours reading to find a similar case law situation, because it's probably happened before, or call the ATO to get one. That's what the accountant should do, rather than give answers they pulled off the top of their head.

    edit: Two rulings that stand out to me
    https://www.ato.gov.au/law/view/view.htm?docid=EV/1051935223…
    https://www.ato.gov.au/law/view/view.htm?docid=EV/1051788595…

    But they're not an exact mirror for your situation.

    • tunzafun001 on 20/06/2022 - 20:18

      Thanks so much for your efforts here. Man they are hard to follow, but much appreciated.

      Ironically, it looks like I have a buyer who wants both, and will use both as a single residence. So I could have saved a packet on not doing the subdivision and I'm guessing avoided all CGT as it would be my singular main residence and never rented for more than 6 years.

  • deme on 20/06/2022 - 16:28
    +2

    Why don't you just call the ATO?

    • Porker on 20/06/2022 - 16:41
      -1

      I suspect OP doesn't want them catching onto his situation.

    • mskeggs on 20/06/2022 - 16:49
      +2

      When the answer is a bit uncertain, the ATO errs on the side of collecting more tax. When the answer is a bit uncertain, you probably want to err on the side of paying less tax.

      Either way, there will be a CGT liability now or in the future, depending on which is sold.
      Moving into the unsold premises doesn’t remove the CGT liability for the period it was income earning, but i am sure some people ‘forget’ about income earning periods years and years ago.
      The ATO is very unlikely to dig up 15 year old tax returns to show you declared rental income back then.

      If it was me, I would probably try and sell the one with the PPOR history to avoid paying CGT now, and worry about CGT on the second sale later on if it works out the way OP is planning.

  • Porker on 20/06/2022 - 16:42

    Side matter - OP how did you manage the Land Tax aspect of the arrangement? (genuine question)

    • tunzafun001 on 20/06/2022 - 20:28

      I just looked up a 2019 statement, and I paid land tax on both of them. But someone from their called me to work out which property I own and live in (as I also have a block of land I ultimately want to build on from the proceeds of the sales). At the time I was across both and she said something about future land being allowed under the same umbrella, as long as you intend to build to live in it.
      They sent out some declaration forms.
      The only thing I owned was the block of land, as the properties are mortgaged to the CBA. So I declared the CBA owns my duplex and I own the land. I haven't received a land tax bill since. I thought they would want to know which properties i have a financial interest in, but it definitely says "own". I think they all come under the threshold anyway. Don't know what happened.

      • Porker on 20/06/2022 - 21:06

        That's an interesting aspect about 'not' owning the duplex. Is the title in your name?

        Might be a good loophole if we can say that we don't 'own' a rental property, as technically the bank does until we pay off the mortgage.

        In any event, best to keep quiet about it. If it's their mistake of not taxing you, then that's great.

        • tunzafun001 on 20/06/2022 - 23:16

          I'm sure it isn't simple as that but in reality, those who stand to make the most out this are the banks (with all the interest paid over the duration, and the government (stamp duty). In the period of 2008 to 2019 my properties lost over 70% of their value, yet the banks still got paid thousands for doing literally nothing…but I'm the one they come after for revenue acquisition…go figure!
          The ATO is a kick em when they are up or down model.

  • Pcosmic on 20/06/2022 - 16:53

    5-6 years. Then sell again without getting taxed.

    • mskeggs on 20/06/2022 - 20:17

      There is no provision to 'remove' the CGT liability from the past by living there now. Anf the ATO says you need to keep records for 5 years after:
      "acquire or dispose of an asset – keep records for the 5 years after it is certain that no capital gains tax (CGT) event can happen"
      It would be hard to audit back a long way though.

      • tunzafun001 on 10/03/2024 - 15:27

        @mskeggs
        Don't suppose you know what happens when a rental property is worth less than when it was first rented?

        Under the Market Substitution Rule - S.118-192 - My property was had a valuation at $187 000. I'm now looking to sell for $170k.

        The other side never been rented ever, and considered my PPOR.

        It would seem CGT is not payable?

        • mskeggs on 10/03/2024 - 15:47

          I'm not an accountant, but if there is no gain during the period of income, there can't be a capital gaing tax liability (even if the property value gained before it was rented out)?
          I would be very careful about scrupulously documenting the valuation at both points - but then I would record the loss to offset future gains.

  • Dollar General on 10/03/2024 - 18:40

    Go see an accountant

    Some things are just not worth skimping on & good financial and/or legal advice falls into that category

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