By far the best explanation of the 6 year rule I have come across! You mentioned there is no minimum period of time you need to move back in to reset the 6 years, however, do I need to live there initially after purchasing the property for a set period of time before renting for the 6 year rule to apply? The reason for asking is I am looking to buy my first property while still living at home with parents and trying to weigh up whether I should rent it out immediately to maximise depreciation and deductions or move in initially to make it my PPR and then move out as soon as possible to be eligible for the 6 year rule and get the benefit of no/reduced cgt
you will need to establish it as your PPR from the start. I would look at moving into the property asap and then renting it and therefore being able to claim the 6 year rule. derek
Great video Derek. I have gathered that in my case, I purchased a property in 1993, and rented it from 1995 to 2007 (12 years) because of living overseas. It's been a PPR ever since. So if I were to sell it at the end of 2025 (32 years of ownership), I would have to pay 6/32 of CGT (minus capital improvements) x by the 50% discount. Never even thought about getting valuations way back then.
It would be interesting for you to work out the difference between what you made after taxes from the final 6 years of rent together with what you saved in tax, NG and depreciation and what you will pay in CGT when you sell the property, not to mention the extra record keeping and bureaucracy involved with the rental dealings.
@@scottfree993 I'm sure I would have been better off to have left it empty. CG has been so strong over the last 25 years renting out is a mugs game. You make bugger all after costs and potentially have to pay a huge whack in CGT. I wish I had known this earlier. My bad.
@@superwag634 yeah there is, unless it’s owned inside super. Super income from pension phase is tax free if super is less than $1.9m in value. Income outside super is still taxed normally. If house sold in pension phase, there’s no income to add the gain to, but the gain is still taxable. If it’s a $500k gain, then taxable income is $250k. That’ll be $84k tax plus $5k Medicare tax
Really good info in this podcast, My question is. What if you rented a property out for a couple of years and then dmolished the property and built a new home and moved into it as you PPR and the decide to sell it after living in it for 7 years
i'm assuming the property wasn't your PPR prior to renting it out. You will be subject to CGT for the two year period it was rented. If it was your PPR prior to renting out, you have no issues. Method 1 you would need to get the property valued prior to being demolished (we are propably only talking land value). therefore your CGT would be calculated on your Market value (prior to demolishion) less your purchase price. Method 2 you will work out the percentage of time it was your PPR. lets say you owned it for 9 years. the first 2 years will be subject to CGT, therefore 2/9th of the gain. Your cost will include the original purchase price plus all your building costs. derek
I have a granny flat attached to my house I live in, the house is 24 years old and addition flat is 10 years old and have rented off and on for that time. How would tax work if I sold house?. Thanks
i've answered this question in other comments. The ATO doesn't have a specific period of time, as long as the ATO is satisfied that you actually 'lived' in the property. I suggest this would be evidenced by your electoral address, your drivers licence, electricity bill etc. derek
Thank you for your video, we purchased our property as an investment in Feb 2018 - to move into once we sold our principle place of residence, we sold the PPR and moved into the new property 7 months later, do we need to pay CGT for this 7 months period the investment was rented for. This property is now our PPR 7 years later - We are now wanting to sell in 2025 are we exempt from paying CGT?
technically the ATO allow 6 months exemption for owning two properties if you were moving from one PPR to another PPR. You might have a 1 month period to consider when you sell you property just to be annoying. derek
Hi Derek, my wife & I purchased our current PPR in March 2006. There were tenants already renting the property from the previous owner. We allowed them to continue renting after we purchased the property, until we moved in to it as our PPR in Sept 2006 (6 months later). Up until that time, my wife & I lived in our apartment which we owned & which was then our PPR until we sold it, to move into our new PPR (after kicking out the tenants). How is CGT calculated in this case, if we decide to sell our current PPR in 2025?
"to reset the 6 year period there's no minimum time but you have to have lived there" I've lived in the same house for 17 years, I rent out the vacant rooms, so for the periods where I am between lodgers, which may be one or two weeks, I can count that as resetting the 6 year period?
no, you have a bit of an issue, because part of your property is being used for income producing. have a look at a video i did that will sort your question out. ua-cam.com/video/3UxaArG1C6w/v-deo.html
Great video. What if a couple.isnnot married and each has their own property and we're about to move in together, into one of the properties, still unmarried, is the person who's moving out of their PPR able to use the 6 year rule dor their property?
the period of time after the 6 years until you move back in will be subject to CGT. Say you moved out of your PPR for 8 years. You would be subject to CGT for 2 years. derek
What happens if you make your PPR your holiday home and move into your beach house as your new PPR, beach house never been used for income, purchased in the 70’s? I ask because my parents will probably do this and the CGT on both would be ridiculous if it applied, more so for the beach house but even for their home in country VIC.
Thanks for this information. Easy to understand the way you’ve explained it. Quick question, what happens if an investment property is part of an inheritance. Does CGT apply if the recipient sells the property?
that is a can of worms and i could do an entire video on the topic. basically, if you inherit a property that was the PPR of the person who died at the time of their death, you will inherit it without any tax liability. If you move into the property (or the deceased person gave the right for someone else to live there) it will become your PPR and the 'cost price' will be the market value at the day of death. If you decide to rent it out, the cost base is still the market value at the day of the deceased death. If you inherit a property that was NOT the PPR of the deceased, you will need to go back to the cost price of the deceased owner and that will become your 'cost base'. for example if the deceased purchased the property for $100,000 in 1995, it might be worth $1m now, but if the deceased only had the property as an investment, you also inherit the tax problem. derek
Great video ! One question - what happens if I buy a house and it has a current tenant for say 6-9 months before I can move into it? My scenario would be purchasing a property in northern Australia, it may be rented for a small period, I live in it for 2 years and then it becomes income producing again - what happens with the CGT? Do I need it to be my PPR from the outset? Thank you!
really good question, one i should have included in the video. unfortunately the property won't become your PPR until you move in. hopefully the property doesn't shoot up in value over that 9 month period. derek
Excellent, informative, and extremely easy to follow. Thank you. What happens if you buy a property as an investment property and years down the road, you decide to move into it as your primary residence?
Is it 6 continuous years or does the 6 years reset if you live in it in between as I have been advised? Reason being there are instances when people move in and out for reasons not entirely of their control or to pursue employment opportunities but with intention of taking it up again as a PPR What if the property was jointly owned and rented out for 3 years Then during property division during a divorce , the rental property is transferred to one of the spouse who lives in it for a 7 years then takes it back to the rental market to take up employment elsewhere for another 4 years Does this mean the CGT exemption no longer applies?
i mentioned the reset rules at 25.15 your second question regarding the divorce: if the property was a rental for the first 3 years, there will be some CGT applicable based on the first 3 years. derek
I had no idea that leaving a home vacant meant the owner could avoid CGT. Now the Prosper data suggesting 27,408 homes in Melbourne alone were left absolutely empty through 2024. This seems like something that will not last given the current housing climate.
Thank you for a good video but, there is capital gains tax on your principle residence if you live on over 5 acres of land. Is there a time period where they actually let you off the capital gains tax? I live on 25 acres not producing anything and have lived here since 87. From my understanding if I sell I can claim 5 acres of the most expensive part of the property (where the house is) and would need to get a valuer in "(not a real estate agent) to value the other 20 acres. How does one keep records for 40 years on what has been spent ie roads, getting the water in etc. what a nightmare. Also if you say ok it cost 30k to bring the water in 40 years ago can you inflate that number to todays value considering they are valuing the land in todays value?
you are correct. if you have a property that is greater than 2 ha, you will need to pay some capital gains when it is sold. you only can claim 2 ha as your main residence. derek
Great video. I’m curious if you didn’t get valuation at the time, what other methods can we use? For apartments would other sales in same building around that time suffice?
Good explanation very much appreciated. On a similar question Im wondering if you have covered the following. I own the building I do business out of. I have been told that if I own and continually do business out of this building for 15 years it will become CGT exempt. Its an old building and really needs knocking down. What happens if I 1) do minor renovations to keep it running 2) do a major renovation or 3) knock it down and build another. The idea would be to claim I have been doing business out of the property for the entire time in all instances. For 2 and 3 I may not be able to occupy the building for quite some time, maybe a year or more.
just checking, is the property a residential property? that you live in and work from? or is this a general CGT question on a commercial property? If it is a commercial property, the 15 year rule is under the Small Business capital gains Tax Concession rules. the 15 year rule relates to your business, not the premises. You also need to be over the age of 55 to qualify. The business also needs to have turnover of less than $2m OR your personal asets (less home and super) is less than $6m. i did a video on the Small Business CGT Concessions. If your business qualifies, then any property that you use to run the business can also quality for the tax exemptions. the property only needs to be used for 7.5 years. derek
@@TwelveAccounting Thank you so much for the reply. That paints a different picture, I think what you have said means that it may not apply to us. The property is 'Commercial'. We've been running the same business from the property for 30+ years and paying rent most of that time until we purchased it (as a personal investment) 5yrs ago. The 'business' is run under a simple company structure, 2 shares, one mine the other my wifes. We only operate our business from the building, no one lives in it. We're over 55. Business TO is under $2m. Personal assets under $6m. The property was purchased as an investment via a personal investment loan - not a loan that our company took out. So we own it personally and lease it back to the business. The building is a personal asset, not owned by the business. By time of retirement or termination of our business, I don't think we will have a business that is saleable - we're in a shrinking industry. So Im thinking the building will be the only asset that we would sell at that time. From what you've said it sounds like the business CGT exemption may not apply simply because the business is run under a company structure. Which is unhappy news...
thanks for your video! If one transfers a home title deed to a member of his family, e.g. his brother, does he needs to pay CGT as well, given the fact that the home has an increased value since 2019 from $360K to $594K in 2024? (the home owner's still alive)
it won't matter if you sell it to your brother or Tom Jones, it is still considered a disposal of CGT purposes. You can't transfer it for way under market value either, it must be transfered at market value (for Stamp Duty and CGT). derek
Hi Derek, for your example at 14:48 I believe you may be wrong in stating there are 2 options for calculating CGT. Assuming the same facts CGT would have to be calculated at sale proceeds $1m less the market value uplift of the property when it first produced income. Can you point me to the tax act where it confirms we have a choice? If property is acquired post 20 Sep 1985, used to produce income after 20 Aug 1996, you would be entitled to partial/exempt CGT exemption at CGT event then you must use the market value of the dwelling when it first used to produce income. You do not have a choice ATO QC 67993.
i believe you are correct. it doesn't make sence to not have the market value after 6 years. thanks for pointing that out, i will make a correction. derek
Really great podcast, I have question, if we lived in property - A for 5 years, and bought Property B. Then moved into property B straight after it got built and lived there for 1.5 years. And Rent out Property A for 6 months , then sold. Can I apply PPR on property - A? Then bought Property - C, and sold property B in following year. Can I also apply PPR on property B? Property B never on rental.
you can use the PPR exemption for property A. There is a 6 month rule where you can have both property A and property B as your PPR to cover the moving period. therefore property A would be 100% exempt. yes for property B. When you moved out of property A, B became your PPR until you sold it. full exemption.
50% of the gain is included in your tax return the year it is sold. This is added to your personal income for that year and therefore subject to you personal marginal income tax rate. there is not separate capital gains tax rate. derek
Thank you for this clear description of CGT :) Curious to know what happens in our situation - we are self-funded retirees and looking to sell out PPR and take advantage of the downsizer super contribution. We will then be moving into our smaller investment property, which will become our PPR. What happens if we decide to move on from this property as well? Is there a time frame where we no longer need to pay CGT? Or is CGT only paid on the time we had it as a rental? I'm thinking we need to have it valued before we move in........
you are correct. Your investment property will be part PPR and part subject to CGT when you sell it. The CGT will be payable on the time you had it as a rental property. derek
Very informative... So if I lived in my apartment for 5 years.. then decided to move abroad and rent it out.. I then decide after 5 years of living abroad I want to return to Australia to sell my apartment.. how long do I have to reside in Australia for before I go back overseas
the important thing will be in the financial year you sell your property, your Australian tax return ticks the box that you were a resident for tax purposes. derek
What would happen if the property had been rented out to produce rental income, say ３ of those 6 years? Would the calculation under both option 1 & 2 remain the same?
assuming the property first qualified as your PPR, the property continues to be your PPR for up to 6 years the property was rented out (produce income). If it was only rented out for 3 years, you still have 3 years to go. It wouldn't change the calculations. derek
Excellent explanation. I need a bit of clarification for my situation. I have PPR and an investment property (4years). I am intending to sell my property and make the investment my PPR. Demolish it , build a new one and sell it. How is this going to work for tax purposes?
make sure you move into your investment property before you demolish it. Get a market value for the propety pre-demo (lower the better). this will lock-in your capital gain (increase in purchase price and market value) and will be the amount subject to CGT when you sell it (method 1). any value increase once it becomes your PPR won't be subject to CGT. You can still do the pro-rata method to do the calculation (total cost including new build less your selling) and then pro-rata the time you have owned it/lived in it. derek
Great video. I know you clearly mention no minimum for the reset ppr. However is there a minimum for the initial ppr? I bought a place but due to a change of circumstances I need to move out after 3 months for a few years and then move back in to live in after that as my ppr. One day I might sell it and don't want to be caught out.
the ATO don't have a minimim time in their legislation. it is up to the home owner to 'show' they have lived in the property. i would imagine 3 months would be sufficient period of time. derek
i like your videos and very clear explain and simple to understand. just that i want to ask what about the situation where the house you live in (ppr) for 5 years and rent out the room or half house (paid income tax on the rental) for 2 years as you still live in other half. do you have to pay cgt after you sell in the future or not? how we calculate this? and do 6 years PPR rule need it or not?. thanks
unfortunately the 6 year rule doesn't save you. It does seem a strange one, but the ATO are quite clear on this situation and require you to pay CGT in the future on the portion of the house that was rented out. you would be better off if you rented the whole house. you do get a market value at the time the house first produces income. Say you purchased house for $500k, the market value when you first rented a room was $800k. You rented 25% of your house (work out as per floor space) for 2 years. You sell the property in 5 years after first renting it out for $1.4m. The calculation would be: Total gain is $600k ($1.4m - $800k). Percentage of time rented (since first produce income) was 2/5th and the floor space used was 25%. therefore the CGT is calculated on 2/5th x 25% = 10%. Equals $60k is subject to CGT.
Hi Derek, my partner and I bought a property in April 2023. We supposed to live in it however, we had to move interstate for our job. Therefore we put our property up for rental. Tenants rented our property for 6 months (1/08/2023 till 1/02/2024). We then moved back into our property March 2024. Do we need to pay CGT? Thanks
you only pay CGT when you sell the property sometime in the future. Unfortunately, the ATO says you must move into the property as soon as possible (moving interstate for a new job won't be a sufficient reason). The ATO does give you a 6 month window if you are also selling a property and moving into a new one. There will be a small window of 9 months that will be subject to CGT, time will reduce this as a percentage. Are you really sure you didn't move into the property, very briefly (for a few days) before you moved interstate? derek
Do gains take into account inflation where the money payed for the investment at time of purchase is way more in terms of buying power than the same amount when you sell it ?
So just to be clear, if you move out of a ppr into another property in your name, even if you never wish to consider the new abode a ppr, the ato will do so from day one?
Because the ato contradicts that on the info page www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence---home/treating-former-home-as-main-residence
Very informative video. Thank you. What happens if a couple owns 2 properties, one in each persons name? Would each person be entitled to a full tax exemption for their respective property? Edit: Could a couple move between properties (live in one, rent the other) to maintain the 6 year PPoR exemption for each property?
thanks Derek. I am now a subscriber to your channel. My situation is I own an investment property from purchase for 4.5 years(rental income), then PPR for 2 years, now back to investment property for 2 years (rental). If I was to maintain it as a rental for another 5 years then go to sell would those market valuations be better if they were higher rather than lower as the capital gained would be lower with regards to valuations and sale price?
after you moved out of the property, i am assuming you can't claim the 6 year rule. you would ideally want the market value when you moved in to be lower and when you moved back out you want it to be higher. derek
Helpful video and incredibly helpful answers to others. Here's another strange problem. Bought a house in 98, lived in it to 2005 when we moved out to allow builders to extend and renovate it into our dream home. Couldn't find a rental so bought another house of similar valuer for that period to 2006, however did not end up moving back! Old renovated ppr (worth approx 3x original cost) was rented to some lucky tenants until now. If I move back to old ppr and live in it another 4 years and likely improve it again whilst living there prior to selling it in say 2028, can I claim the extra 6 years out of the rental years as my ppr exemption? Ie 2012 to 2024 as taxable (12/30ths) rather than 2006 to 2024(18/30th)? If so does the taken 6 years create a tax liability in the current home for when that is eventually sold seeing as you have benefits in one ppr at a time? How can I minimise my cgt? And if so I wonder if any land tax paid be recouped for those six years? I always intended it to be our forever ppr but life (having kids) got in the way!
there is plenty happening here. Basically, you can only have ONE property as your PPR at a time, so the moment you move from one to another, the original stops being the PPR and the new one starts being your PPR. The 6-year rule doesn't come into play at all. therefore from 2012 to 2024 it would be subject to CGT. i will do another video on how to work out the actual cost of your house that has been used as your PPR. in addition to the regualar purchase price, stamp duty etc, there are the "3rd Element' Costs that include the costs incured when it was your PPR that would have been deductible if it was a rental property, such as rates, repairs, insurance, interest, land tax etc. these costs will be significant and should help reduce your capital gain when you sell it. derek
About the dates. Does the 6 years start at the exact date of the rental contract begins and ends with tenants? Example if you put the house up for rent with a property agent, but it took 3 months to find a tenant. At which point does the 6 years start and end.
Great video. So easy to understand. I just have one question. If you own a holiday home and it is not being rented out, is there a period of ownership time that you can avoid CGT on it? For example, if you own it for 8 years, when you sell is CGT still applicable?
Thank you again for a great video! Can I move to a rental place, rent out my PPR to my adult children and negatively gear it? What do I need to do to make it work with the ATO?
Great content! re arrears market valuation on residential property. You mention very difficult to obtain but, 1) can they be obtained? And 2) are they accepted by the ATO (assuming realistically reported)? Would appreciate your opinions… cheers
Very informative - thanks Derek. What documentation is required to prove PPR? Is a screenshot of your license / electorate / electricity bill enough? How do you obtain an electricity bill in a week? Usually takes up to 3 months to get a bill.
there is no set way of detiriming where you lived, it will be a case by case. the ATO have said the electorate role and drivers license are 'strong' indicators. derek
G'day Derek, I just found your channel and appreciate the knowledge sharing. Property A is owned by my fiance and is our ppr. Property B is owned by both of us and is tenanted for approx 6 years. Property C is owned by both of us and is unliveable, requiring full Reno so is vacant. If we wanted to sell B or C and avoid or reduce cgt, could one or both of us move into it for x amount of time to make it our ppr and then sell it and move back into A? Cheers, Paul.
Thanks for this video. Questions still remain and one of them is what is the time limit to live before this property is rented out? My situation. We built a house in NSW, then I lived in there (property A) for 1.5 months installing fences, shed, doing landscaping and many other works. After 1.5 months, I returned to my PPOR (property B in VIC) where I lived before. Then I will sell property A in 4 years. So, can I use such 1.5 months to be able to say that I can use such 6 years rule? Is 1.5 months a good enough period? If not, what is this period and where is it stipulated? Thanks.
there is no minumum time. the ATO just want you to have 'lived' there. That would mean having that property as your 'abode'. This is why having your drivers licence, electrol role changed would be important factors to show you moved. You need to remember, you can only have ONE PPR. Therefore if your start calling your property A your PPR, this mean that property B can't be your PPR. What this does allow, you can now choose property A or Property B to be your PPR (but not both). When you sell property A, you might want to do the calculations on what CGT you will have saved by caling property A your PPR, but you might be up for with property B in the future when you sell it. maths will be the answer. derek
When we retire in 5 years we plan to move into our investment property brought in 2019. We will sell our main home at that time making the investment property our principal residence. Plan would be to live there for 10 years. How long do we have to live there to avoid CGT
unfortunatley this is no time that will make your property fully exempt. Time will however errode the gain (percentage of time used as PPR divided by the total period of ownership). derek
Advice please….we built a home in 2016, and lived in it until 2019. We then purchased another property to use as our PPR. We rented out our first property when we moved into our 2nd property, in April 2019. We now want to sell our 2nd property (currently owned as our PPR) and then move back into our rental property in April 2025. This will mean that we will move back into that property just prior to the 6 yr expiry date. My understanding is that there is no CGT payable on our 2nd property (PPR) Is this correct? Can we then sell our rental property, that we will be using as our PPR without paying CGT?
there will be CGT on one of your properties. You can only ever have 1 PPR at a time. you can sell your 2nd property CGT free as it has only been your PPR. the first property will be subject to CGT as it ceased to be your PPR when you moved into your second property. you can't claim the 6 year rule for the first property at the same time you are claiming the PPR exemption for the second property. If you sell the first property, 6/ ths of the gain will be subject to CGT (method 2). derek
Is it umtimately better to have a higher real estate market valuation or lower valuation for selling and paying the least amount of cgt if all else is the same
that will depend if you are moving in or moving out of the property. If you are moving out (property going from being your PPR to an investment) the higher the better, as the market value will become the 'cost base' for the Capital gains. derek
@@TwelveAccounting thanks Derek. I am now a subscriber to your channel. The situation is investment property from purchase for 4.5 years(rental income), then PPR for 2 years, now back to investment property for 2 years (rental). If I was to maintain it as a rental for another 5 years then go to sell would those market valuations be better if they were higher rather than lower as the capital gained would be lower with regards to valuations and sale price?
Except house prices have been rising faster than the rate of inflation for over 30 years. Also house prices aren't included when calculating the rate of inflation - if they were, interest rates would be much higher
yes you can reset the PPR again. if you move back in after 7 years, there will be a 1 year period that it will be subject to CGT. Get two Market values done (hopefully there hasn't been any increase in that year). derek
Great video! Couple questions, do you get to choose between pro rata and market value method, or does the ATO choose the higher/lower one? Also, if you move back into the property after 5 years, and then rent it out again (to reset the 6 year timer), is that when you’d get a new valuation / the previous valuation won’t matter? And last question (sorry), for a foreign resident, do you need to have been an Aus tax resident for that financial year (ie that you have been in Australia for more than 183 days in the year), as that would require moving back for 6 months+? Thanks so much!
yes, you get to choose which method. therefore make sure you have your Market value appraisals done so you can have the two options. regarding the australian residency, you will need to be classified as a resident for tax purposes. The 183 day rule is often mis-understood as being the guide, but this only refers to people who are coming and going from Australia multiple times during the year. the residency rule for anyone who is either moving to or from australia is basically your 'intention' to live here. where do you intend to reside? where is your abode? therefore it is usually the date you arrive. derek
@@TwelveAccounting ok great, but a valuation is only needed once the property begins being rented again (i.e.if you move back in for 6 months to reset the timer). I also didn't know the timer could reset 'without' having to be in there for 6 months, but I guess the ATO would argue, if you haven't been living there for a decent time (say 6 months), then it wasn't your PPR? Thanks for this Derek, very helpful.
Thanks for the information, I understand about CGT , what if I sold my property after I retire and my income was $0 because I have stopped working before 67 do I still pay CGT?
yes. the capital gain is considred part of your regular income and needs to be included in your personal income tax return in the year that you made the gain. if you have $0 other income, you will be able to use the tax free threshold and the other 'lower' tax rates. But it still needs to be included. being retired doesn't give you any exemption. derek
Excellent insight and facts. What about if own a PPR and a Holiday house. You decide to sell your principal place of residence and then live in your holiday at it becomes your PPR? I assume the original PPR sold is CGT free? Can the holiday house you now plan on living in then become your PPR? Is there a time that you must live in it before it becomes your PPR for CGT exempt purposes? Thanks, Ian
the holiday day home will become your PPR once you sell the original home and you move into the holiday home. therefore the period of time you owned the holiday home before you moved into it will always be subject to CGT, either on a market value or pro-rata method. You won't be able to make the holiday home 100% exempt. derek
Question. If you rent out your property for say 7 years and then live in it for 6 months and sell it while you are living in it, does the CGT exemption apply then too?
you need to have lived in the property before you rented it. If you can show you lived in the property, it then becomes your PPR. You can move out but continue to claim the property as your PPR for another 6 years. If you didn't live in the property, you will be subject to CGT on 7 years of the total 7.5 years (about 93% of the total capital gain). derek
@@TwelveAccounting Thanks Derek. Say I did live in the property for the first 2 years that I had it and it's subsequently rented for the next 7 years. However, my intention is to live in it for the next 6 months and sell it during this time. Does that mean I'm fully exempt from CGT even though I've rented it for more than the 6 year period in one stint? That's what I meant.
@@walkabouttrek6718 if you lived in the property to start with, you can continue to claim the property as your PPR for another 6 years (unless you moved into another property that you own and are claiming the PPR for). If you rent it for 7 years, that will mean there is 1 year that will be subject to CGT. If you move back in and live there again for 6 months: the total period of time you owned the property would be 9.5 years, or which 1 year was subject to CGT; therefore 1/9.5 (10.5%) of the gain will be taxable. derek
Derek I have owned a set of 3 commercial units for at least 25 years If I sold all 3 as an investment for the buyer what % capital gains would I be looking at. Thanks for your videos. Trevor
what did you pay for them? and what are you likely to sell them for? i assume they have all been pure investments (you haven't lived in any of them?). Do you own them yourself, or are they in a Trust/company?
Do I have to move back in my PPR for a certain time before I sell it, if it has been rented out for about 2 years? Can I sell it to the current tenants if they are interested without their having to vacate? Thanks.
it doesn't matter if you move back into your property. the main question is, did you live in the property before you rented it out? If you lived there prior to renting it out, and you didn't live in another property you owned, you can continue to call the property your PPR for another 6 years. derek
Hi Mate. I bought a property in Sydney 2017, rented it out since the day I bought until 2021 than started living my self since 2021. I'm thinking of selling it. Am I liable for CGT? 🙏 Ur help is will be appreciated . Thank you. Oh while I was renting my property I was also renting some where else to live in. Thanks
Thank you Derek. How about i buy a new investment property and keep living in my old property for the time being. Rent the investment property at the same time.Would i be able to claim my old property as my primary property later when I sell? Or the both property will be counted as my investments? Thanks heaps for your advice. @TwelveAccounting
Really enjoyed the podcast, my entire family has found it very interesting. I do have one question, I don't believe anyone has asked yet. I purchased a property as our PPR and took vacant possession only a week ago, but I am currently renting a property in Sydney due to work commitments. Can I rent out our home while I have to work in Sydney and use the 6-year rule? I know that the tax department has not stated an actual time frame, and all the scenarios mentioned here have been for people who seem to have lived in the home for a few years. Thank you in advance.
the ATO require the property to be 'lived in'. once you take possession you do need to move into the property (unless there is a really good reason not to; ie medical). there is no minimum time period to 'live' in the property. derek
i assume you mean when a property is inherited? if you inherit a property that was purchased pre-cgt, you are deemed to have aquired it on the day of death for the market value on day of death. derek
I heard that if your PPR is on land eg. 10 acres when you sell o only the first 5 acres is CGT except but the second 5 or more is subject to CGT? Is this correct? Location Victoria
@@TwelveAccounting thank you Derek 👍. Interesting our property is zoned at no less than 10acres/4ha. Seems a little unfair to pay CGT on land that you can’t basically do anything with ie subdivide.
@@AussieDrifters you need someone to give you a valuation of the part of the property you want to be your PPR (usually the 2 ha the home is on) and a value for the remainer of the property (usually vacent land). It is the remainder you will be subject to CGT on. derek
commercial property can't be your Main 'Residence'. the 15 year rule comes under the Small Business CGT Concessions if you have used the property as a 'business' asset. i will do a video on that one day. derek
@@TwelveAccounting THANKS i used the 15 year rule as in 2015 no one knew about it and saved about 240k ,to give to the gov to waste"no one even has heard of it as i have call radio statios even 3 months ago .so called gurus and all like to push super ??? o recon a few years from now will quietly Dissapear!
@@pkd6369 the small business CGT concessions are very powerful. Using the exemption, you only need to use your comercial property for 7.5 years to get the exemption (as long as your business has been operating for more than 15 years. derek
Cashflow while holding is different to capital gain when selling. If you sold it at a loss, as in purchase price and costs to buy and sell totalled more than sell price, you have no tax to pay and you carry over a capital loss which lasts forever. That offsets capital gains in the future
Cashflow while holding is different to capital gain when selling. If you sold it at a loss, as in purchase price and costs to buy and sell totalled more than sell price, you have no tax to pay and you carry over a capital loss which lasts forever. That offsets capital gains in the future
Question on pro rata CGT calculations Bought property in 1992 as PPR married rent out in 1996 sold property in June 2024, if working PPR 6 year rule valuation will be for 2002. Working on Pro-rata will. It be 1/32 (32 years ownership of property). Am I correct for pro RATA calculations will be:- SELLING PRICE - ORIGINAL PURCHASE PRICE = CAPITAL GAIN /32 = TAXABLE CGT Thanks JC
i will assume you rented it all the time between 1996 and 2024. your first issue will be the 6 year extension. where did you live once you were married? If you moved into a house owned by your spouse, your original property ceases to be your PPR for CGT purposes. lets say you were able to get the 6 year extension, the calculation on the pro-rata method would be 22/32th. ie you owned the property for 32 years and it wasn't your PPR from 2002 to 2024 = 22 years. if property ceased to be your PPR when you were married, the calculation would be 28/32th.
@@TwelveAccounting In this case the PPR 6 YEARS RULE.WILL NOT APPLY. The property cease to be my PPR, ONCE I MOVED INTO MY SPOUSE HOUSE. SO IT IS BASE ON THE RULE OF PPR SO THE CAPITAL GAIN IS CALCUALTE ON THE.YEAR I RRNT OUT THE HOUSE. I.e purchased in 1992.rented out after married in 1996. So house valuation will be.for the 1996 Year.if I use the.house valuation.method. Thanks , very helpfull.
@@TwelveAccounting Can the cost be done by Adding the fees paid for the purchases of the property in 1992 added to the valuation of the property for 1996 + all coat associated with the sales I.e 1992 fees + sales cost for 2024 + 1996 valuation. Am I correct. Do you have a practise in a melbourne So that I can obtain your services? Thanks E
@@jeffchan4991 correct. the cost base becomes all the expenses incurred in purchasing the property including Stamp duty, legal fees and even travel to 'search' for the property. The cost base also includes expenses such as rates, interest, strata fees etc that you incured when the property was your PPR (they are known by the ATO as Third element expenses). The selling costs include the agents fees, advertising, legals etc. derek
@@TwelveAccounting Thank you for your help I had been doing my own tax return for these past years as there was nothing complicated or extraordinary. Selling the property is more complicated than I thought. So I need to go to a tax accountant to my current year return. Your explanations are very helpful. Thank you for your help, much appreciated.
Great video as we are thinking of renting out our ppr. If we build a granny flat and rent out the house and granny flat, would we need to have both the granny flat and house vacant to be exempt from CGT after the 6 years and move back into house? Or can we keep granny flat rented and just move back into house? Thanks Chris
granny flats are tricky, and can be a whole video on the subject. basically, if you build a granny flat for commercial use (not your actual granny living there), you have basically created another asset that will need to be dealt with for Capital Gains Tax. You will need to nominate either the house or the flat as your PPR and % pro-rata the value of your property between the house and the flat (this can be done of area or market value). I suggest you get a market value done prior to renting out. derek
A friend of mine moved into a rental property after 5 years and it became her Principal Place. She has lived there for seven years now. Would she have to pay CGT if she sold it in the future? Can anybody help?
yes she will, as it wasn't her PPR for the first 5 years (unless she can show that she had moved into the property briefly before she rented it out). derek
a property owned in a trust can't not be a Main Residence, even if you live in it. Therefore there will usually be CGT payable when it is sold. this is one of the down-sides to holding property in trusts, you will never get the PPR exemption. derek
Thanks Derek for the excellent presentation with examples. I wonder could you please advise renovation costs of investment property & CGT. Do I need to hold it for one year to claim 50% CGT discount on the renovation costs of investment. Say I brought the property in 2003 for $300K, 2024 renovated for $100K, if I sell in 2025 perhaps for $1.2 M ; how much would be the CGT. Much appreciated for your kind help. Cheers
i'm assuming this isn't a PPR question, just a straight CGT question. the asset is the land. you can make improvements to the land (or the buildings on the land), but the 12 month rule (50% discount) is based on the land ownership. In your example: Cost price will be $300k + $100k = $400k (add your buying costs such as Stamp Duty, legals, searching fees (flights, travel, accomodation), bank charges etc) Selling price = $1,200k (less selling costs like agent fees, legals) Profit = $800k 50% Discount = $400k $400k will be included in your tax return (if you are 100% owner) the year of the contract date (not settlement date). lets say your other income is > $190k, the tax on the $400k will all be at 47% = $188,000 tax payable
@ G’day Derek Thanks for the quick & kind response & advise. This is an investment property & we brought in 2003 and fully renovated Jul 24, we were intending to sell it but was told that we have to hold/rent it for 12 months to claim 50% CGT discount on the renovation costs of $100k. Please advise is that correct or we could sell and claim 50% CGT discount on all selling price +costs. Thanks
@@SRK-01 i don't believe there is a time factor on the renovations. when preparing tax returns for my clients, the only dates required are the purchase date, the selling date and any pro-rata PPR/exemption dates. no mention of renovation dates. derek
@@TwelveAccounting Hi Derek, if a person moves into their PPR as soon as practical after purchase, is there a minimum period to satisfy the requirement of PPR before renting it out (less than 6 years) to qualify for exemption of CGT?
Curious of what happens with deceased estates? I’m guessing this is a common question. For example What about if “mum” had the family home that she and dad lived in for 40 years, after dad dies she moves into an over 50’s tri-care facility where she uses her superannuation to pay $500k for her room in the assisted living facility. She still owns the family home and rents it out to her grandson for a nominal $10pw so there is a contractual understanding of occupancy. When she passes on, after the 6 year CGT exemption does whoever inherits the family home have to pay capital gains on the family home? Noting that her $500k room in the care facility can’t accrue value - the payment is just refunded.
CGT .. when I was selling 50% of Capital Gains Tax was Taxable .. I just wacked it in My Super and paid 20% tax...and at my age I could draw out say something like 200 Thou Tax free..
yes, a common strategy when someone is looking at a big Capital Gains Tax bill is to reduce their taxable income by making a large concessional contribution to Super. However there are limits to how much concessional contributions you can make (usually $30,000 per year if you total superannuation balance is > $500k)
Can you transfer property to children's name to avoid CGT, gift it to them. Would it work in the example that you lived together in PPR then transferred to their name after that move into your investment property that now becomes your PPR.
you can transfer your PPR to your children and it then becomes their PPR. the only downside is the stamp duty on the transfer. The transfer needs to be done at market value. derek
A quick question. I buy an investment property in July 2017 and rent out. I move into the property in July 2020 . Paid $900,000. Say I sell the property to downsize home size. Spent $350,000 from 2020- 2022 refurbishing. Sell property for $2,100,000 in July 2027. How much would be subject to capital gains tax?? The reason I say 2027 is I want to do a bulk downsizer contribution to our SMSF account. In addition to non concessional contributions.
first thing to do is work out what the Market Value was in July 2020. method 1: the Capital gain will be the difference between $900,000 and the market value at July 2020. method 2: Total capital gain will be $2,100,000 - ($900,000 + $350,000) = $850,000 multiplied by 3/10th = $255,000. derek
@@TwelveAccounting So the $255,000 is the gross amount of CG and therefore $127,500 would be the taxable component split between my wife and myself so $63,750 each which would be added to all taxable income? If we are both receiving a tax-free pension from our SMSF and have no other taxable income in the year of property sale, then on current tax rates the estimated tax each would pay would be around $9913 + $1275 Medicare levy? I think method 1 would work out higher. I intend contacting your firm regarding future accounting services. I will send an email via your website. Cheers Patrick👍
@@patrickaustralia528 correct. the $900k can have the stamp duty and other buying costs added, and the selling price of $2.1m can have the agent fees, legal fees etc deducted to reduce the gain a bit. derek
Nice video, thanks. Just wondering if you are aware of the government (Labor Government) new idea on CGT. They want to change it from 50% to 25% discount after holding asset for over 12 months. In your opinion, what do you think will happen? Do you think they will Grandfather those people that have had the asset for more than 12 months after the law comes out? Thanks.
This policy you’ve was proposed for the 2019 election wasn’t it? The policy says from 2020 new rules would apply. Means that roughly half of inflation will be taxed. They are such incompetent fools who hate wealth building and think that life should be ‘fair’, as measured by outcomes not by fairness in the eyes of the law
This policy you’ve was proposed for the 2019 election wasn’t it? The policy says from 2020 new rules would apply. Means that roughly half of inflation will be taxed. They are such incompetent fools who hate wealth building and think that life should be ‘fair’, as measured by outcomes not by fairness in the eyes of the law
Hi , have a house for 20 years in Melbourne and has been rented out for 20 years, worth about 950000$ what would be the capital gains tax if I were to sell??
Timely video, thank you Derek. My fiancée will soon move from her PPR that was in her name before we met, into my house that I already owned in my name before we met. Can she continue to claim her own property as her PPR, since she has zero ownership in my property? (Not personalised advice, I understand)
My wife lived in her property 8years then moved into my property and rented out her property. We married after 2years then sold her property prior to it being rented for 3full years. Is she cgt exempt or is my property considered 'our' property from date of marriage?
I can do a whole video on what the ATO considers a 'spouse', but lets say this was when you were married. At that point your property is considered 'joint' even though it was only in your name. meaning she could call her property her PPR until you were married, therefore not her PPR for just less than a year. She should be ok unless the property had a big spike in value just prior to her selling it. derek
for older Australians... What if they LIVE in the property whilst also renting out a room or 2? Does it change if it's a relative and you charge minimal 'rent'/board, (granny flat?) and therefore don't claim tax deductions etc?
this is a problem. If you rent out part of your house, it will be subject to CGT on a floor space %. there is no 6 year CGT exemption for part of your house being rented. if its a relative, just don't collect any rent from them (they can make 'contributions' towards the house running costs). derek
If you don’t show income and don’t claim tax deductions for it and tax office doesn’t know that you rent part of your house then just normal rules apply.
the loss is considered a Capital loss and can only be offset against capital gains. The capital losses can be carried forward forever to reduce your future capital gains. derek
Originally I was in a partnership but bought out my partners share .There are 2 loans on the properties 1 by the Pty ltd company I took over and 1 by my family trust, The loans were interest only until 5 years ago when my family trust started principal and interest payments of # $3000 pm.The dept at present on both loans is $1295000.00 and current market value $1.8 M.These are my only income . Trevor
You may want to double check if your client who moved to Bali can still claim the PPR exemption as he would still need to meet the test for being an Australian resident for tax purposes.
he hasn't sold his property yet. If he was thinking of selling, he will need to ensure he is a resident for tax purposes in the year he sells it to claim the CGT exemption. derek
My understanding was that if you live in a property for a minimum of two years you only receive a $250k Capitol Gain Exemption with the remaining Sale Gain being Taxable.
You will have a CGT issue to work through. I assume you are actually on the title as 'Tenants in Common' as 12.5% (you) and 12.5% (ex-wife)? The transfer of 12.5% from your ex-wife to your new wife will be a problem for your ex-wife. i suggest you have your ex-wife transfer her share to you and claim the 'relationship breakdown CGT rollover relief' (basically says if you transfer asset due to relationship breakdown you will avoid CGT and Stamp Duty). derek
@@TwelveAccounting sorry it's his new wife ,he was single when we bought it 2017 and like many parents we helped him.The bank insisted our names where on title to protect our interests.
@@petermurphy2167 ok. the bank didn't do you any favours then. the transfer of 25% title from you to your son's wife will be subject to CGT (probably Stamp Duty as well). derek
Excellent, just what I need. Great and thorough explanation.
Thank you for explaining cgt so clearly and easy to understand.
Finally some one who makes clear that there is no tax on your home if you sell.
If there was, nobody could afford to move house.
Thank you Derek for explaining it so clearly! Very informative.
Thanks for the clear explanation which corrected some of my misunderstandings
Great video. You actually answered every question I had in my mind. Wow.
Thanks for the thorough explanation.
Awesome! I hate anything involving tax. You explained this so well even I understood it. Thank you 🙏
By far the best explanation of the 6 year rule I have come across!
You mentioned there is no minimum period of time you need to move back in to reset the 6 years, however, do I need to live there initially after purchasing the property for a set period of time before renting for the 6 year rule to apply? The reason for asking is I am looking to buy my first property while still living at home with parents and trying to weigh up whether I should rent it out immediately to maximise depreciation and deductions or move in initially to make it my PPR and then move out as soon as possible to be eligible for the 6 year rule and get the benefit of no/reduced cgt
you will need to establish it as your PPR from the start. I would look at moving into the property asap and then renting it and therefore being able to claim the 6 year rule. derek
Love and appreciate your very informative videos. Thank you! Small comment; it is Principal (not principle) place of residence.
excellent. don't get me to spell 'recieved' either. derek
Great video Derek. I have gathered that in my case, I purchased a property in 1993, and rented it from 1995 to 2007 (12 years) because of living overseas. It's been a PPR ever since. So if I were to sell it at the end of 2025 (32 years of ownership), I would have to pay 6/32 of CGT (minus capital improvements) x by the 50% discount. Never even thought about getting valuations way back then.
It would be interesting for you to work out the difference between what you made after taxes from the final 6 years of rent together with what you saved in tax, NG and depreciation and what you will pay in CGT when you sell the property, not to mention the extra record keeping and bureaucracy involved with the rental dealings.
@@scottfree993 I'm sure I would have been better off to have left it empty. CG has been so strong over the last 25 years renting out is a mugs game. You make bugger all after costs and potentially have to pay a huge whack in CGT. I wish I had known this earlier. My bad.
@ayfj4572 or if you had a gap in tenants before the 6 years it would reset for another 6 years as long as no other principal place of residence.
Sell it in retirement phase and there’s no cgt
@@superwag634 yeah there is, unless it’s owned inside super.
Super income from pension phase is tax free if super is less than $1.9m in value.
Income outside super is still taxed normally.
If house sold in pension phase, there’s no income to add the gain to, but the gain is still taxable.
If it’s a $500k gain, then taxable income is $250k. That’ll be $84k tax plus $5k Medicare tax
Really good info in this podcast, My question is.
What if you rented a property out for a couple of years and then dmolished the property and built a new home and moved into it as you PPR and the decide to sell it after living in it for 7 years
i'm assuming the property wasn't your PPR prior to renting it out. You will be subject to CGT for the two year period it was rented. If it was your PPR prior to renting out, you have no issues.
Method 1 you would need to get the property valued prior to being demolished (we are propably only talking land value). therefore your CGT would be calculated on your Market value (prior to demolishion) less your purchase price.
Method 2 you will work out the percentage of time it was your PPR. lets say you owned it for 9 years. the first 2 years will be subject to CGT, therefore 2/9th of the gain. Your cost will include the original purchase price plus all your building costs. derek
Great video answered all the questions I had
I have a granny flat attached to my house I live in, the house is 24 years old and addition flat is 10 years old and have rented off and on for that time. How would tax work if I sold house?. Thanks
Thanks for the video, how long do one has to live at a place to consider it as a PPR?
i've answered this question in other comments. The ATO doesn't have a specific period of time, as long as the ATO is satisfied that you actually 'lived' in the property. I suggest this would be evidenced by your electoral address, your drivers licence, electricity bill etc. derek
Thank you for your video, we purchased our property as an investment in Feb 2018 - to move into once we sold our principle place of residence, we sold the PPR and moved into the new property 7 months later, do we need to pay CGT for this 7 months period the investment was rented for. This property is now our PPR 7 years later - We are now wanting to sell in 2025 are we exempt from paying CGT?
technically the ATO allow 6 months exemption for owning two properties if you were moving from one PPR to another PPR. You might have a 1 month period to consider when you sell you property just to be annoying. derek
Hi Derek, my wife & I purchased our current PPR in March 2006. There were tenants already renting the property from the previous owner. We allowed them to continue renting after we purchased the property, until we moved in to it as our PPR in Sept 2006 (6 months later). Up until that time, my wife & I lived in our apartment which we owned & which was then our PPR until we sold it, to move into our new PPR (after kicking out the tenants). How is CGT calculated in this case, if we decide to sell our current PPR in 2025?
You shouldn't have any CGT issues. The ATO allow a 6 month period to have 2 PPR's to allow moving. derek
"to reset the 6 year period there's no minimum time but you have to have lived there"
I've lived in the same house for 17 years, I rent out the vacant rooms, so for the periods where I am between lodgers, which may be one or two weeks, I can count that as resetting the 6 year period?
no, you have a bit of an issue, because part of your property is being used for income producing. have a look at a video i did that will sort your question out.
ua-cam.com/video/3UxaArG1C6w/v-deo.html
Great video. What if a couple.isnnot married and each has their own property and we're about to move in together, into one of the properties, still unmarried, is the person who's moving out of their PPR able to use the 6 year rule dor their property?
i mentioned this at 24.06. 'couples' can only have 1 PPR between them. derek
What if the property has been rented out for more than 6 years but i move back in to stay for some time? Any discounted CGT?
the period of time after the 6 years until you move back in will be subject to CGT. Say you moved out of your PPR for 8 years. You would be subject to CGT for 2 years. derek
What happens if you make your PPR your holiday home and move into your beach house as your new PPR, beach house never been used for income, purchased in the 70’s? I ask because my parents will probably do this and the CGT on both would be ridiculous if it applied, more so for the beach house but even for their home in country VIC.
the property bought in the 1970's will never have CGT because it was pre-CGT. Doesn't matter what it is used for or who lives in it. derek
Thanks for this information. Easy to understand the way you’ve explained it. Quick question, what happens if an investment property is part of an inheritance. Does CGT apply if the recipient sells the property?
that is a can of worms and i could do an entire video on the topic.
basically, if you inherit a property that was the PPR of the person who died at the time of their death, you will inherit it without any tax liability. If you move into the property (or the deceased person gave the right for someone else to live there) it will become your PPR and the 'cost price' will be the market value at the day of death. If you decide to rent it out, the cost base is still the market value at the day of the deceased death.
If you inherit a property that was NOT the PPR of the deceased, you will need to go back to the cost price of the deceased owner and that will become your 'cost base'. for example if the deceased purchased the property for $100,000 in 1995, it might be worth $1m now, but if the deceased only had the property as an investment, you also inherit the tax problem. derek
@@TwelveAccountingappreciate your response, very helpful. A good topic for a future video!
Great video ! One question - what happens if I buy a house and it has a current tenant for say 6-9 months before I can move into it? My scenario would be purchasing a property in northern Australia, it may be rented for a small period, I live in it for 2 years and then it becomes income producing again - what happens with the CGT? Do I need it to be my PPR from the outset? Thank you!
really good question, one i should have included in the video. unfortunately the property won't become your PPR until you move in. hopefully the property doesn't shoot up in value over that 9 month period. derek
Excellent, informative, and extremely easy to follow. Thank you. What happens if you buy a property as an investment property and years down the road, you decide to move into it as your primary residence?
there will still be CGT on the period of time it was producing income, either on a prorata method or market value. derek
Is it 6 continuous years or does the 6 years reset if you live in it in between as I have been advised?
Reason being there are instances when people move in and out for reasons not entirely of their control or to pursue employment opportunities but with intention of taking it up again as a PPR
What if the property was jointly owned and rented out for 3 years
Then during property division during a divorce , the rental property is transferred to one of the spouse who lives in it for a 7 years then takes it back to the rental market to take up employment elsewhere for another 4 years
Does this mean the CGT exemption no longer applies?
i mentioned the reset rules at 25.15
your second question regarding the divorce: if the property was a rental for the first 3 years, there will be some CGT applicable based on the first 3 years. derek
I had no idea that leaving a home vacant meant the owner could avoid CGT. Now the Prosper data suggesting 27,408 homes in Melbourne alone were left absolutely empty through 2024. This seems like something that will not last given the current housing climate.
Thank you for a good video but, there is capital gains tax on your principle residence if you live on over 5 acres of land. Is there a time period where they actually let you off the capital gains tax? I live on 25 acres not producing anything and have lived here since 87. From my understanding if I sell I can claim 5 acres of the most expensive part of the property (where the house is) and would need to get a valuer in "(not a real estate agent) to value the other 20 acres. How does one keep records for 40 years on what has been spent ie roads, getting the water in etc. what a nightmare.
Also if you say ok it cost 30k to bring the water in 40 years ago can you inflate that number to todays value considering they are valuing the land in todays value?
you are correct. if you have a property that is greater than 2 ha, you will need to pay some capital gains when it is sold. you only can claim 2 ha as your main residence. derek
What happens in a situation where the PPOR is owned under a company trust structure? Is it exempt from CGT?
Never ever
It wouldn't ever be a PPR. It has to be in an individals personal name to be considered a PPR. derek
Great video. I’m curious if you didn’t get valuation at the time, what other methods can we use? For apartments would other sales in same building around that time suffice?
You can do a retrospective evaluation. There are companies who do it.
Good explanation very much appreciated. On a similar question Im wondering if you have covered the following. I own the building I do business out of. I have been told that if I own and continually do business out of this building for 15 years it will become CGT exempt. Its an old building and really needs knocking down. What happens if I 1) do minor renovations to keep it running 2) do a major renovation or 3) knock it down and build another. The idea would be to claim I have been doing business out of the property for the entire time in all instances. For 2 and 3 I may not be able to occupy the building for quite some time, maybe a year or more.
just checking, is the property a residential property? that you live in and work from? or is this a general CGT question on a commercial property?
If it is a commercial property, the 15 year rule is under the Small Business capital gains Tax Concession rules. the 15 year rule relates to your business, not the premises. You also need to be over the age of 55 to qualify. The business also needs to have turnover of less than $2m OR your personal asets (less home and super) is less than $6m.
i did a video on the Small Business CGT Concessions.
If your business qualifies, then any property that you use to run the business can also quality for the tax exemptions. the property only needs to be used for 7.5 years. derek
@@TwelveAccounting Thank you so much for the reply. That paints a different picture, I think what you have said means that it may not apply to us.
The property is 'Commercial'. We've been running the same business from the property for 30+ years and paying rent most of that time until we purchased it (as a personal investment) 5yrs ago.
The 'business' is run under a simple company structure, 2 shares, one mine the other my wifes. We only operate our business from the building, no one lives in it. We're over 55. Business TO is under $2m. Personal assets under $6m.
The property was purchased as an investment via a personal investment loan - not a loan that our company took out. So we own it personally and lease it back to the business. The building is a personal asset, not owned by the business.
By time of retirement or termination of our business, I don't think we will have a business that is saleable - we're in a shrinking industry. So Im thinking the building will be the only asset that we would sell at that time.
From what you've said it sounds like the business CGT exemption may not apply simply because the business is run under a company structure. Which is unhappy news...
thanks for your video! If one transfers a home title deed to a member of his family, e.g. his brother, does he needs to pay CGT as well, given the fact that the home has an increased value since 2019 from $360K to $594K in 2024? (the home owner's still alive)
it won't matter if you sell it to your brother or Tom Jones, it is still considered a disposal of CGT purposes. You can't transfer it for way under market value either, it must be transfered at market value (for Stamp Duty and CGT). derek
Hi Derek, for your example at 14:48 I believe you may be wrong in stating there are 2 options for calculating CGT. Assuming the same facts CGT would have to be calculated at sale proceeds $1m less the market value uplift of the property when it first produced income. Can you point me to the tax act where it confirms we have a choice? If property is acquired post 20 Sep 1985, used to produce income after 20 Aug 1996, you would be entitled to partial/exempt CGT exemption at CGT event then you must use the market value of the dwelling when it first used to produce income. You do not have a choice ATO QC 67993.
i believe you are correct. it doesn't make sence to not have the market value after 6 years. thanks for pointing that out, i will make a correction. derek
Really great podcast,
I have question, if we lived in property - A for 5 years, and bought Property B. Then moved into property B straight after it got built and lived there for 1.5 years. And Rent out Property A for 6 months , then sold. Can I apply PPR on property - A?
Then bought Property - C, and sold property B in following year. Can I also apply PPR on property B? Property B never on rental.
you can use the PPR exemption for property A. There is a 6 month rule where you can have both property A and property B as your PPR to cover the moving period. therefore property A would be 100% exempt.
yes for property B. When you moved out of property A, B became your PPR until you sold it. full exemption.
What is the capital gains tax if you only have the property for rental not primary place of residence, ?
50% of the gain is included in your tax return the year it is sold. This is added to your personal income for that year and therefore subject to you personal marginal income tax rate. there is not separate capital gains tax rate. derek
thank you!
Thank you for this clear description of CGT :) Curious to know what happens in our situation - we are self-funded retirees and looking to sell out PPR and take advantage of the downsizer super contribution. We will then be moving into our smaller investment property, which will become our PPR. What happens if we decide to move on from this property as well? Is there a time frame where we no longer need to pay CGT? Or is CGT only paid on the time we had it as a rental? I'm thinking we need to have it valued before we move in........
you are correct. Your investment property will be part PPR and part subject to CGT when you sell it. The CGT will be payable on the time you had it as a rental property. derek
Very informative...
So if I lived in my apartment for 5 years.. then decided to move abroad and rent it out.. I then decide after 5 years of living abroad I want to return to Australia to sell my apartment.. how long do I have to reside in Australia for before I go back overseas
the important thing will be in the financial year you sell your property, your Australian tax return ticks the box that you were a resident for tax purposes. derek
What would happen if the property had been rented out to produce rental income, say ３ of those 6 years? Would the calculation under both option 1 & 2 remain the same?
assuming the property first qualified as your PPR, the property continues to be your PPR for up to 6 years the property was rented out (produce income). If it was only rented out for 3 years, you still have 3 years to go.
It wouldn't change the calculations. derek
Excellent explanation. I need a bit of clarification for my situation. I have PPR and an investment property (4years). I am intending to sell my property and make the investment my PPR. Demolish it , build a new one and sell it. How is this going to work for tax purposes?
make sure you move into your investment property before you demolish it. Get a market value for the propety pre-demo (lower the better). this will lock-in your capital gain (increase in purchase price and market value) and will be the amount subject to CGT when you sell it (method 1). any value increase once it becomes your PPR won't be subject to CGT.
You can still do the pro-rata method to do the calculation (total cost including new build less your selling) and then pro-rata the time you have owned it/lived in it. derek
Great video. I know you clearly mention no minimum for the reset ppr. However is there a minimum for the initial ppr? I bought a place but due to a change of circumstances I need to move out after 3 months for a few years and then move back in to live in after that as my ppr. One day I might sell it and don't want to be caught out.
the ATO don't have a minimim time in their legislation. it is up to the home owner to 'show' they have lived in the property. i would imagine 3 months would be sufficient period of time. derek
@@TwelveAccounting Thanks for responding Derek!
What if your PPR is owned in a Discretionary Family Trust? Will the trust Pay CGT?
it can't be a PPR if it is owned by a Trust. It will be subject to CGT with no chance of any PPR exemptions. derek
i like your videos and very clear explain and simple to understand. just that i want to ask what about the situation where the house you live in (ppr) for 5 years and rent out the room or half house (paid income tax on the rental) for 2 years as you still live in other half. do you have to pay cgt after you sell in the future or not? how we calculate this? and do 6 years PPR rule need it or not?. thanks
unfortunately the 6 year rule doesn't save you. It does seem a strange one, but the ATO are quite clear on this situation and require you to pay CGT in the future on the portion of the house that was rented out.
you would be better off if you rented the whole house.
you do get a market value at the time the house first produces income. Say you purchased house for $500k, the market value when you first rented a room was $800k. You rented 25% of your house (work out as per floor space) for 2 years. You sell the property in 5 years after first renting it out for $1.4m.
The calculation would be: Total gain is $600k ($1.4m - $800k). Percentage of time rented (since first produce income) was 2/5th and the floor space used was 25%. therefore the CGT is calculated on 2/5th x 25% = 10%. Equals $60k is subject to CGT.
Hi Derek, my partner and I bought a property in April 2023. We supposed to live in it however, we had to move interstate for our job. Therefore we put our property up for rental. Tenants rented our property for 6 months (1/08/2023 till 1/02/2024). We then moved back into our property March 2024. Do we need to pay CGT? Thanks
you only pay CGT when you sell the property sometime in the future. Unfortunately, the ATO says you must move into the property as soon as possible (moving interstate for a new job won't be a sufficient reason). The ATO does give you a 6 month window if you are also selling a property and moving into a new one. There will be a small window of 9 months that will be subject to CGT, time will reduce this as a percentage.
Are you really sure you didn't move into the property, very briefly (for a few days) before you moved interstate? derek
Do gains take into account inflation where the money payed for the investment at time of purchase is way more in terms of buying power than the same amount when you sell it ?
there is no adjustment to inflation (anymore). you receive a 50% reduction in the Capital gain if you own the property for more than 12 months. derek
So just to be clear, if you move out of a ppr into another property in your name, even if you never wish to consider the new abode a ppr, the ato will do so from day one?
Because the ato contradicts that on the info page www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence---home/treating-former-home-as-main-residence
Very informative video. Thank you. What happens if a couple owns 2 properties, one in each persons name? Would each person be entitled to a full tax exemption for their respective property?
Edit: Could a couple move between properties (live in one, rent the other) to maintain the 6 year PPoR exemption for each property?
6:27 is pretty obvious how ATO would treat that
Wishful thinking🎉
you can move between properties (ie change drivers licence etc), but as one property becomes the PPR the other property ceases to be your PPR. derek
That was excellent, thank you
thanks Derek. I am now a subscriber to your channel. My situation is I own an investment property from purchase for 4.5 years(rental income), then PPR for 2 years, now back to investment property for 2 years (rental). If I was to maintain it as a rental for another 5 years then go to sell would those market valuations be better if they were higher rather than lower as the capital gained would be lower with regards to valuations and sale price?
after you moved out of the property, i am assuming you can't claim the 6 year rule.
you would ideally want the market value when you moved in to be lower and when you moved back out you want it to be higher. derek
Helpful video and incredibly helpful answers to others.
Here's another strange problem. Bought a house in 98, lived in it to 2005 when we moved out to allow builders to extend and renovate it into our dream home. Couldn't find a rental so bought another house of similar valuer for that period to 2006, however did not end up moving back! Old renovated ppr (worth approx 3x original cost) was rented to some lucky tenants until now. If I move back to old ppr and live in it another 4 years and likely improve it again whilst living there prior to selling it in say 2028, can I claim the extra 6 years out of the rental years as my ppr exemption? Ie 2012 to 2024 as taxable (12/30ths) rather than 2006 to 2024(18/30th)? If so does the taken 6 years create a tax liability in the current home for when that is eventually sold seeing as you have benefits in one ppr at a time? How can I minimise my cgt? And if so I wonder if any land tax paid be recouped for those six years? I always intended it to be our forever ppr but life (having kids) got in the way!
there is plenty happening here. Basically, you can only have ONE property as your PPR at a time, so the moment you move from one to another, the original stops being the PPR and the new one starts being your PPR. The 6-year rule doesn't come into play at all. therefore from 2012 to 2024 it would be subject to CGT.
i will do another video on how to work out the actual cost of your house that has been used as your PPR. in addition to the regualar purchase price, stamp duty etc, there are the "3rd Element' Costs that include the costs incured when it was your PPR that would have been deductible if it was a rental property, such as rates, repairs, insurance, interest, land tax etc. these costs will be significant and should help reduce your capital gain when you sell it. derek
About the dates. Does the 6 years start at the exact date of the rental contract begins and ends with tenants? Example if you put the house up for rent with a property agent, but it took 3 months to find a tenant. At which point does the 6 years start and end.
It starts from when the property was 'avaliable for rent'. derek
Great video. So easy to understand. I just have one question. If you own a holiday home and it is not being rented out, is there a period of ownership time that you can avoid CGT on it? For example, if you own it for 8 years, when you sell is CGT still applicable?
A holiday home wouldn't be your PPR ... So, zero exemption. You only get 1 PPR at a time.
the holiday home needs to start off being your PPR. If you move out into another home you own, the holiday home ceases to be your PPR. derek
Just wondering. What if rented out for 5 is, then return for 2, then rent out again ...? Does it re-set?
yes. you will have another 6 years starting from when you moved out the second time. derek
@TwelveAccounting
Gosh, that's surprising 😮. Thanks.
@TwelveAccounting
Moving to Brisbane soon. Purchasing property. Do you do tax returns, property stuff etc as part of your practice ....
Thank you again for a great video!
Can I move to a rental place, rent out my PPR to my adult children and negatively gear it? What do I need to do to make it work with the ATO?
yes you can. just make sure the rent is market value. derek
Great content! re arrears market valuation on residential property. You mention very difficult to obtain but, 1) can they be obtained? And 2) are they accepted by the ATO (assuming realistically reported)? Would appreciate your opinions… cheers
Very informative - thanks Derek. What documentation is required to prove PPR? Is a screenshot of your license / electorate / electricity bill enough? How do you obtain an electricity bill in a week? Usually takes up to 3 months to get a bill.
there is no set way of detiriming where you lived, it will be a case by case. the ATO have said the electorate role and drivers license are 'strong' indicators. derek
G'day Derek, I just found your channel and appreciate the knowledge sharing. Property A is owned by my fiance and is our ppr. Property B is owned by both of us and is tenanted for approx 6 years. Property C is owned by both of us and is unliveable, requiring full Reno so is vacant. If we wanted to sell B or C and avoid or reduce cgt, could one or both of us move into it for x amount of time to make it our ppr and then sell it and move back into A? Cheers, Paul.
Thanks for this video. Questions still remain and one of them is what is the time limit to live before this property is rented out?
My situation. We built a house in NSW, then I lived in there (property A) for 1.5 months installing fences, shed, doing landscaping and many other works. After 1.5 months, I returned to my PPOR (property B in VIC) where I lived before. Then I will sell property A in 4 years. So, can I use such 1.5 months to be able to say that I can use such 6 years rule? Is 1.5 months a good enough period? If not, what is this period and where is it stipulated? Thanks.
there is no minumum time. the ATO just want you to have 'lived' there. That would mean having that property as your 'abode'. This is why having your drivers licence, electrol role changed would be important factors to show you moved.
You need to remember, you can only have ONE PPR. Therefore if your start calling your property A your PPR, this mean that property B can't be your PPR.
What this does allow, you can now choose property A or Property B to be your PPR (but not both). When you sell property A, you might want to do the calculations on what CGT you will have saved by caling property A your PPR, but you might be up for with property B in the future when you sell it. maths will be the answer. derek
When we retire in 5 years we plan to move into our investment property brought in 2019. We will sell our main home at that time making the investment property our principal residence. Plan would be to live there for 10 years. How long do we have to live there to avoid CGT
unfortunatley this is no time that will make your property fully exempt. Time will however errode the gain (percentage of time used as PPR divided by the total period of ownership). derek
Advice please….we built a home in 2016, and lived in it until 2019. We then purchased another property to use as our PPR. We rented out our first property when we moved into our 2nd property, in April 2019. We now want to sell our 2nd property (currently owned as our PPR) and then move back into our rental property in April 2025. This will mean that we will move back into that property just prior to the 6 yr expiry date. My understanding is that there is no CGT payable on our 2nd property (PPR) Is this correct? Can we then sell our rental property, that we will be using as our PPR without paying CGT?
there will be CGT on one of your properties. You can only ever have 1 PPR at a time.
you can sell your 2nd property CGT free as it has only been your PPR.
the first property will be subject to CGT as it ceased to be your PPR when you moved into your second property. you can't claim the 6 year rule for the first property at the same time you are claiming the PPR exemption for the second property.
If you sell the first property, 6/ ths of the gain will be subject to CGT (method 2). derek
Is it umtimately better to have a higher real estate market valuation or lower valuation for selling and paying the least amount of cgt if all else is the same
that will depend if you are moving in or moving out of the property. If you are moving out (property going from being your PPR to an investment) the higher the better, as the market value will become the 'cost base' for the Capital gains. derek
@@TwelveAccounting thanks Derek. I am now a subscriber to your channel. The situation is investment property from purchase for 4.5 years(rental income), then PPR for 2 years, now back to investment property for 2 years (rental). If I was to maintain it as a rental for another 5 years then go to sell would those market valuations be better if they were higher rather than lower as the capital gained would be lower with regards to valuations and sale price?
It has always intrigued / bothered me, that there is NO adjustment for inflation. So, the Govt is "double-dipping" on the CGT rort. Just my opinion...
Yes, and you the owner or investor takes the risk of a loan, work harder and save money to pay it down for years.
when you do the CGT calculation, the gain is discounted by 50% if you own the asset for more than 12 months. derek
Except house prices have been rising faster than the rate of inflation for over 30 years.
Also house prices aren't included when calculating the rate of inflation - if they were, interest rates would be much higher
@@TwelveAccountingwhat if you own it for 20 years? You’d be better off with no discount and a straight adjustment for inflation.
@@TwelveAccountingit’s not a true 50% discount if it doesn’t take at least CPI inflation into account. The government takes us for mugs.
Great video, realy help my wife and I to understand CGT. Can you reset if you have already rented the property longer than 6 years?
yes you can reset the PPR again. if you move back in after 7 years, there will be a 1 year period that it will be subject to CGT. Get two Market values done (hopefully there hasn't been any increase in that year). derek
Great video! Couple questions, do you get to choose between pro rata and market value method, or does the ATO choose the higher/lower one?
Also, if you move back into the property after 5 years, and then rent it out again (to reset the 6 year timer), is that when you’d get a new valuation / the previous valuation won’t matter?
And last question (sorry), for a foreign resident, do you need to have been an Aus tax resident for that financial year (ie that you have been in Australia for more than 183 days in the year), as that would require moving back for 6 months+?
Thanks so much!
yes, you get to choose which method. therefore make sure you have your Market value appraisals done so you can have the two options.
regarding the australian residency, you will need to be classified as a resident for tax purposes. The 183 day rule is often mis-understood as being the guide, but this only refers to people who are coming and going from Australia multiple times during the year. the residency rule for anyone who is either moving to or from australia is basically your 'intention' to live here. where do you intend to reside? where is your abode? therefore it is usually the date you arrive. derek
@@TwelveAccounting ok great, but a valuation is only needed once the property begins being rented again (i.e.if you move back in for 6 months to reset the timer).
I also didn't know the timer could reset 'without' having to be in there for 6 months, but I guess the ATO would argue, if you haven't been living there for a decent time (say 6 months), then it wasn't your PPR?
Thanks for this Derek, very helpful.
Thanks for the information, I understand about CGT , what if I sold my property after I retire and my income was $0 because I have stopped working before 67 do I still pay CGT?
yes. the capital gain is considred part of your regular income and needs to be included in your personal income tax return in the year that you made the gain. if you have $0 other income, you will be able to use the tax free threshold and the other 'lower' tax rates. But it still needs to be included. being retired doesn't give you any exemption. derek
Excellent insight and facts.
What about if own a PPR and a Holiday house. You decide to sell your principal place of residence and then live in your holiday at it becomes your PPR?
I assume the original PPR sold is CGT free?
Can the holiday house you now plan on living in then become your PPR? Is there a time that you must live in it before it becomes your PPR for CGT exempt purposes?
Thanks,
Ian
the holiday day home will become your PPR once you sell the original home and you move into the holiday home. therefore the period of time you owned the holiday home before you moved into it will always be subject to CGT, either on a market value or pro-rata method. You won't be able to make the holiday home 100% exempt. derek
@ thank you very much Derek. Your videos are brilliant!
Regards,
Ian
Question. If you rent out your property for say 7 years and then live in it for 6 months and sell it while you are living in it, does the CGT exemption apply then too?
you need to have lived in the property before you rented it. If you can show you lived in the property, it then becomes your PPR. You can move out but continue to claim the property as your PPR for another 6 years.
If you didn't live in the property, you will be subject to CGT on 7 years of the total 7.5 years (about 93% of the total capital gain). derek
@@TwelveAccounting Thanks Derek. Say I did live in the property for the first 2 years that I had it and it's subsequently rented for the next 7 years. However, my intention is to live in it for the next 6 months and sell it during this time. Does that mean I'm fully exempt from CGT even though I've rented it for more than the 6 year period in one stint? That's what I meant.
@@walkabouttrek6718 if you lived in the property to start with, you can continue to claim the property as your PPR for another 6 years (unless you moved into another property that you own and are claiming the PPR for). If you rent it for 7 years, that will mean there is 1 year that will be subject to CGT. If you move back in and live there again for 6 months: the total period of time you owned the property would be 9.5 years, or which 1 year was subject to CGT; therefore 1/9.5 (10.5%) of the gain will be taxable. derek
Derek I have owned a set of 3 commercial units for at least 25 years If I sold all 3 as an investment for the buyer what % capital gains would I be looking at. Thanks for your videos. Trevor
what did you pay for them? and what are you likely to sell them for? i assume they have all been pure investments (you haven't lived in any of them?). Do you own them yourself, or are they in a Trust/company?
Do I have to move back in my PPR for a certain time before I sell it, if it has been rented out for about 2 years?
Can I sell it to the current tenants if they are interested without their having to vacate?
Thanks.
it doesn't matter if you move back into your property. the main question is, did you live in the property before you rented it out? If you lived there prior to renting it out, and you didn't live in another property you owned, you can continue to call the property your PPR for another 6 years. derek
@@TwelveAccountinghow long do you have to have lived in it and you don’t have any other PPR in that time? Thanks Derek
Hi Mate. I bought a property in Sydney 2017, rented it out since the day I bought until 2021 than started living my self since 2021. I'm thinking of selling it. Am I liable for CGT? 🙏 Ur help is will be appreciated . Thank you. Oh while I was renting my property I was also renting some where else to live in. Thanks
long story short, yes. Its an investment your liable for it.
unfortunately you will be subject to CGT. You needed to have lived in the property prior to renting it out to claim the 6 year rule. derek
Thank you Derek. How about i buy a new investment property and keep living in my old property for the time being. Rent the investment property at the same time.Would i be able to claim my old property as my primary property later when I sell? Or the both property will be counted as my investments? Thanks heaps for your advice. @TwelveAccounting
Really enjoyed the podcast, my entire family has found it very interesting.
I do have one question, I don't believe anyone has asked yet. I purchased a property as our PPR and took vacant possession only a week ago, but I am currently renting a property in Sydney due to work commitments. Can I rent out our home while I have to work in Sydney and use the 6-year rule?
I know that the tax department has not stated an actual time frame, and all the scenarios mentioned here have been for people who seem to have lived in the home for a few years.
Thank you in advance.
Yes, how long after you purchase the property as PPR before you can rent it out to potentially avoid CGT?
the ATO require the property to be 'lived in'. once you take possession you do need to move into the property (unless there is a really good reason not to; ie medical). there is no minimum time period to 'live' in the property. derek
does the grandfathering CGT rule still apply for property pre CGT apply
i assume you mean when a property is inherited? if you inherit a property that was purchased pre-cgt, you are deemed to have aquired it on the day of death for the market value on day of death. derek
@@TwelveAccounting no if property purchased pre cgt is still deemed free of cgt liability when sold
I heard that if your PPR is on land eg. 10 acres when you sell o only the first 5 acres is CGT except but the second 5 or more is subject to CGT? Is this correct? Location Victoria
correct. you are able to claim 2 ha as your PPR and exempt from CGT, anything more you will have to pay some CGT. derek
@@TwelveAccounting thank you Derek 👍. Interesting our property is zoned at no less than 10acres/4ha. Seems a little unfair to pay CGT on land that you can’t basically do anything with ie subdivide.
@@AussieDrifters you need someone to give you a valuation of the part of the property you want to be your PPR (usually the 2 ha the home is on) and a value for the remainer of the property (usually vacent land). It is the remainder you will be subject to CGT on. derek
@@TwelveAccounting thanks for explaining this for me, it seems rather simple and makes sense. thanks Derek
is this for domestic as commercial has the 15 year exemption?
commercial property can't be your Main 'Residence'.
the 15 year rule comes under the Small Business CGT Concessions if you have used the property as a 'business' asset. i will do a video on that one day. derek
@@TwelveAccounting THANKS i used the 15 year rule as in 2015 no one knew about it and saved about 240k ,to give to the gov to waste"no one even has heard of it as i have call radio statios even 3 months ago .so called gurus and all like to push super ??? o recon a few years from now will quietly Dissapear!
@@pkd6369 the small business CGT concessions are very powerful. Using the exemption, you only need to use your comercial property for 7.5 years to get the exemption (as long as your business has been operating for more than 15 years. derek
Had a villa paid extra to cover mortgage sold at a loss plus we paid for all repairs, what tax should apply
Cashflow while holding is different to capital gain when selling.
If you sold it at a loss, as in purchase price and costs to buy and sell totalled more than sell price, you have no tax to pay and you carry over a capital loss which lasts forever. That offsets capital gains in the future
Cashflow while holding is different to capital gain when selling.
If you sold it at a loss, as in purchase price and costs to buy and sell totalled more than sell price, you have no tax to pay and you carry over a capital loss which lasts forever. That offsets capital gains in the future
@@NoRegertsHerenot in Australia
@@yuliaschannel6288 incorrect. That’s the tax rule in Australia
Thank you derek
Question on pro rata CGT calculations
Bought property in 1992 as PPR married rent out in 1996 sold property in June 2024, if working PPR 6 year rule valuation will be for 2002.
Working on Pro-rata will. It be 1/32 (32 years ownership of property).
Am I correct for pro RATA calculations
will be:-
SELLING PRICE - ORIGINAL PURCHASE PRICE = CAPITAL GAIN /32 = TAXABLE CGT
Thanks
JC
i will assume you rented it all the time between 1996 and 2024.
your first issue will be the 6 year extension. where did you live once you were married? If you moved into a house owned by your spouse, your original property ceases to be your PPR for CGT purposes.
lets say you were able to get the 6 year extension, the calculation on the pro-rata method would be 22/32th. ie you owned the property for 32 years and it wasn't your PPR from 2002 to 2024 = 22 years.
if property ceased to be your PPR when you were married, the calculation would be 28/32th.
@@TwelveAccounting
In this case the PPR 6 YEARS RULE.WILL NOT APPLY.
The property cease to be my PPR, ONCE I MOVED INTO MY SPOUSE HOUSE.
SO IT IS BASE ON THE RULE OF PPR
SO THE CAPITAL GAIN IS CALCUALTE ON THE.YEAR I RRNT OUT THE HOUSE.
I.e purchased in 1992.rented out after married in 1996.
So house valuation will be.for the 1996
Year.if I use the.house valuation.method.
Thanks , very helpfull.
@@TwelveAccounting
Can the cost be done by
Adding the fees paid for the purchases of the property in 1992 added to the valuation of the property for 1996 + all coat associated with the sales
I.e
1992 fees + sales cost for 2024 + 1996 valuation.
Am I correct.
Do you have a practise in a melbourne
So that I can obtain your services?
Thanks
E
@@jeffchan4991 correct. the cost base becomes all the expenses incurred in purchasing the property including Stamp duty, legal fees and even travel to 'search' for the property.
The cost base also includes expenses such as rates, interest, strata fees etc that you incured when the property was your PPR (they are known by the ATO as Third element expenses).
The selling costs include the agents fees, advertising, legals etc. derek
@@TwelveAccounting
Thank you for your help
I had been doing my own tax return for these past years as there was nothing complicated or extraordinary. Selling the property is more complicated than I thought.
So I need to go to a tax accountant to my current year return.
Your explanations are very helpful.
Thank you for your help, much appreciated.
Great video as we are thinking of renting out our ppr. If we build a granny flat and rent out the house and granny flat, would we need to have both the granny flat and house vacant to be exempt from CGT after the 6 years and move back into house? Or can we keep granny flat rented and just move back into house? Thanks Chris
granny flats are tricky, and can be a whole video on the subject.
basically, if you build a granny flat for commercial use (not your actual granny living there), you have basically created another asset that will need to be dealt with for Capital Gains Tax. You will need to nominate either the house or the flat as your PPR and % pro-rata the value of your property between the house and the flat (this can be done of area or market value). I suggest you get a market value done prior to renting out. derek
@@TwelveAccounting ok thank you , also market appraisal before building the flat ? Or after building it? The house would be ppr. Thanks Chris
@@Chris-xu6wy if you get a market appraisal after it is built, then you can split into House and granny flat based on area. derek
yes. that would be a good idea
@@TwelveAccountingany information on turning ppr into investment property? Rentvesting?
A friend of mine moved into a rental property after 5 years and it became her Principal Place. She has lived there for seven years now. Would she have to pay CGT if she sold it in the future? Can anybody help?
yes she will, as it wasn't her PPR for the first 5 years (unless she can show that she had moved into the property briefly before she rented it out). derek
@@TwelveAccounting Thanks heaps, Derek. I'll pass on the bad news!
Great info, thanks
Hi do you pay capital gain if you sell a house in trust ?
a property owned in a trust can't not be a Main Residence, even if you live in it. Therefore there will usually be CGT payable when it is sold. this is one of the down-sides to holding property in trusts, you will never get the PPR exemption. derek
I bought property and rent it out after five I move in, how that work would I get exempt or not.
you need to have moved into the property BEFORE you rented it out to claim the exemption. derek
@@TwelveAccounting Thanks
Thanks Derek for the excellent presentation with examples. I wonder could you please advise renovation costs of investment property & CGT. Do I need to hold it for one year to claim 50% CGT discount on the renovation costs of investment. Say I brought the property in 2003 for $300K, 2024 renovated for $100K, if I sell in 2025 perhaps for $1.2 M ; how much would be the CGT. Much appreciated for your kind help. Cheers
i'm assuming this isn't a PPR question, just a straight CGT question.
the asset is the land. you can make improvements to the land (or the buildings on the land), but the 12 month rule (50% discount) is based on the land ownership.
In your example:
Cost price will be $300k + $100k = $400k (add your buying costs such as Stamp Duty, legals, searching fees (flights, travel, accomodation), bank charges etc)
Selling price = $1,200k (less selling costs like agent fees, legals)
Profit = $800k
50% Discount = $400k
$400k will be included in your tax return (if you are 100% owner) the year of the contract date (not settlement date).
lets say your other income is > $190k, the tax on the $400k will all be at 47% = $188,000 tax payable
@ G’day Derek Thanks for the quick & kind response & advise. This is an investment property & we brought in 2003 and fully renovated Jul 24, we were intending to sell it but was told that we have to hold/rent it for 12 months to claim 50% CGT discount on the renovation costs of $100k. Please advise is that correct or we could sell and claim 50% CGT discount on all selling price +costs. Thanks
@@SRK-01 i don't believe there is a time factor on the renovations. when preparing tax returns for my clients, the only dates required are the purchase date, the selling date and any pro-rata PPR/exemption dates. no mention of renovation dates. derek
What if you bought a property, rented it for 2 years initially then moved in to that property for the next 20 years? Exempt?
no. You must start with it being a PPR. the ATO says you must move into the property as soon as practical after you purchased it. derek
@@TwelveAccounting Hi Derek, if a person moves into their PPR as soon as practical after purchase, is there a minimum period to satisfy the requirement of PPR before renting it out (less than 6 years) to qualify for exemption of CGT?
Curious of what happens with deceased estates? I’m guessing this is a common question. For example What about if “mum” had the family home that she and dad lived in for 40 years, after dad dies she moves into an over 50’s tri-care facility where she uses her superannuation to pay $500k for her room in the assisted living facility. She still owns the family home and rents it out to her grandson for a nominal $10pw so there is a contractual understanding of occupancy. When she passes on, after the 6 year CGT exemption does whoever inherits the family home have to pay capital gains on the family home? Noting that her $500k room in the care facility can’t accrue value - the payment is just refunded.
It's better off charging no rent as he explains in the video.
as MrM says, don't charge any rent for the property and you don't need to worry about the 6 years. derek
CGT .. when I was selling 50% of Capital Gains Tax was Taxable .. I just wacked it in My Super and paid 20% tax...and at my age I could draw out say something like 200 Thou Tax free..
yes, a common strategy when someone is looking at a big Capital Gains Tax bill is to reduce their taxable income by making a large concessional contribution to Super. However there are limits to how much concessional contributions you can make (usually $30,000 per year if you total superannuation balance is > $500k)
Can you transfer property to children's name to avoid CGT, gift it to them. Would it work in the example that you lived together in PPR then transferred to their name after that move into your investment property that now becomes your PPR.
you can transfer your PPR to your children and it then becomes their PPR. the only downside is the stamp duty on the transfer. The transfer needs to be done at market value. derek
A quick question. I buy an investment property in July 2017 and rent out. I move into the property in July 2020 . Paid $900,000. Say I sell the property to downsize home size. Spent $350,000 from 2020- 2022 refurbishing. Sell property for $2,100,000 in July 2027. How much would be subject to capital gains tax?? The reason I say 2027 is I want to do a bulk downsizer contribution to our SMSF account. In addition to non concessional contributions.
first thing to do is work out what the Market Value was in July 2020.
method 1: the Capital gain will be the difference between $900,000 and the market value at July 2020.
method 2: Total capital gain will be $2,100,000 - ($900,000 + $350,000) = $850,000 multiplied by 3/10th = $255,000.
derek
@@TwelveAccounting So the $255,000 is the gross amount of CG and therefore $127,500 would be the taxable component split between my wife and myself so $63,750 each which would be added to all taxable income? If we are both receiving a tax-free pension from our SMSF and have no other taxable income in the year of property sale, then on current tax rates the estimated tax each would pay would be around $9913 + $1275 Medicare levy?
I think method 1 would work out higher.
I intend contacting your firm regarding future accounting services. I will send an email via your website. Cheers Patrick👍
@@patrickaustralia528 correct. the $900k can have the stamp duty and other buying costs added, and the selling price of $2.1m can have the agent fees, legal fees etc deducted to reduce the gain a bit. derek
Nice video, thanks. Just wondering if you are aware of the government (Labor Government) new idea on CGT. They want to change it from 50% to 25% discount after holding asset for over 12 months. In your opinion, what do you think will happen? Do you think they will Grandfather those people that have had the asset for more than 12 months after the law comes out? Thanks.
This policy you’ve was proposed for the 2019 election wasn’t it?
The policy says from 2020 new rules would apply.
Means that roughly half of inflation will be taxed.
They are such incompetent fools who hate wealth building and think that life should be ‘fair’, as measured by outcomes not by fairness in the eyes of the law
This policy you’ve was proposed for the 2019 election wasn’t it?
The policy says from 2020 new rules would apply.
Means that roughly half of inflation will be taxed.
They are such incompetent fools who hate wealth building and think that life should be ‘fair’, as measured by outcomes not by fairness in the eyes of the law
i'm not aware of this even being discussed. it was very briefly talked about prior to 2019, but it was very quickly forgotten about. derek
Hi , have a house for 20 years in Melbourne and has been rented out for 20 years, worth about 950000$ what would be the capital gains tax if I were to sell??
have a look at another video i did, it has some examples. ua-cam.com/video/3UxaArG1C6w/v-deo.html
Timely video, thank you Derek. My fiancée will soon move from her PPR that was in her name before we met, into my house that I already owned in my name before we met. Can she continue to claim her own property as her PPR, since she has zero ownership in my property? (Not personalised advice, I understand)
you won't like my answer. a 'family' can only have one PPR at a time. (although see my point about having two properties 50% exempt). derek
@TwelveAccounting Thanks for the response. I'm glad to find out about it now.
My wife lived in her property 8years then moved into my property and rented out her property. We married after 2years then sold her property prior to it being rented for 3full years.
Is she cgt exempt or is my property considered 'our' property from date of marriage?
I can do a whole video on what the ATO considers a 'spouse', but lets say this was when you were married. At that point your property is considered 'joint' even though it was only in your name. meaning she could call her property her PPR until you were married, therefore not her PPR for just less than a year. She should be ok unless the property had a big spike in value just prior to her selling it. derek
she sounds like a gold digger mate, be careful
Excellent
for older Australians... What if they LIVE in the property whilst also renting out a room or 2? Does it change if it's a relative and you charge minimal 'rent'/board, (granny flat?) and therefore don't claim tax deductions etc?
this is a problem. If you rent out part of your house, it will be subject to CGT on a floor space %. there is no 6 year CGT exemption for part of your house being rented.
if its a relative, just don't collect any rent from them (they can make 'contributions' towards the house running costs). derek
If you don’t show income and don’t claim tax deductions for it and tax office doesn’t know that you rent part of your house then just normal rules apply.
What if you sell at a loss
the loss is considered a Capital loss and can only be offset against capital gains. The capital losses can be carried forward forever to reduce your future capital gains. derek
Originally I was in a partnership but bought out my partners share .There are 2 loans on the properties 1 by the Pty ltd company I took over and 1 by my family trust, The loans were interest only until 5 years ago when my family trust started principal and interest payments of #
$3000 pm.The dept at present on both loans is $1295000.00 and current market value $1.8 M.These are my only income . Trevor
whose name are the properties in?
What did you pay for the properties?
Why don't you tell me what country you are in? Is it US, Canada, UK ???
Australia
pick it by the accent
@@ritmolatino1627 i don't have an accent
You may want to double check if your client who moved to Bali can still claim the PPR exemption as he would still need to meet the test for being an Australian resident for tax purposes.
he hasn't sold his property yet. If he was thinking of selling, he will need to ensure he is a resident for tax purposes in the year he sells it to claim the CGT exemption. derek
Good!
My understanding was that if you live in a property for a minimum of two years you only receive a $250k Capitol Gain Exemption with the remaining Sale Gain being Taxable.
Are you in USA? This is for Australian tax law.
i believe you are talking about the CGT rules in USA. derek
What about bank of mum and dad who own 25% of sons house on title, now selling share to new wife
You will have a CGT issue to work through. I assume you are actually on the title as 'Tenants in Common' as 12.5% (you) and 12.5% (ex-wife)? The transfer of 12.5% from your ex-wife to your new wife will be a problem for your ex-wife. i suggest you have your ex-wife transfer her share to you and claim the 'relationship breakdown CGT rollover relief' (basically says if you transfer asset due to relationship breakdown you will avoid CGT and Stamp Duty). derek
@@TwelveAccounting sorry it's his new wife ,he was single when we bought it 2017 and like many parents we helped him.The bank insisted our names where on title to protect our interests.
@@petermurphy2167 ok. the bank didn't do you any favours then. the transfer of 25% title from you to your son's wife will be subject to CGT (probably Stamp Duty as well). derek