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Converting a primary residence into an investment property

Newbie

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Hello.  We plan on moving to a new house and are considering whether to retain our existing primary residence and converting it into an investment property (the new property would become our primary residence).  We would consequently become liable for capital gains tax should we subsequently sell the investment property at some point in the future.  My question relates to the cost base for the investment property for CGT purposes.  Would it be the initial purchase cost e.g. $500,000, or would it be the market value at the point of time it became an investment property e.g. $600,000?  Regards

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ATO Certified Response

Community Moderator

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Hi @rich_james79

 

Welcome to our Community.

 

@macfanboy has provided you some useful information. For further guidance, have a look at the using your home to produce income page on our website.

 

If you start using your main residence to produce income after 20 August 1996, you're generally taken to have acquired it at the time you first used it for this purpose.

 

This means when you sell the dwelling, you need to work out the capital gain or loss using its market value at the time you first used it to produce income. You don't have a choice.

 

This rule only applies if all of the requirements are met. You can read about these requirements as well as how the rule works by checking out the value of home when first used to produce income section. Pay particular attention to Erin's rental property example.

 

If you have any on other questions, check out the capital gains tax page on our website.

 

Hope this helps.

 

Thanks,

 

ChrisR

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ATO Certified Response

Taxicorn

Replies 1

It would be $600,000 the point it became an Investment property.

 

Calculating cost bases and deciding which property retains your Primary Place of Residence and for how long can be quite complex.

I would suggest talking to your Tax Accountant about your situation so they can provide all the information that you will/may need to minimise your CGT and maximise your return from the investment property.

 

 

 

 

 

Newbie

Replies 0

Thank you

Most helpful response

ATO Certified Response

Community Moderator

Replies 0

Hi @rich_james79

 

Welcome to our Community.

 

@macfanboy has provided you some useful information. For further guidance, have a look at the using your home to produce income page on our website.

 

If you start using your main residence to produce income after 20 August 1996, you're generally taken to have acquired it at the time you first used it for this purpose.

 

This means when you sell the dwelling, you need to work out the capital gain or loss using its market value at the time you first used it to produce income. You don't have a choice.

 

This rule only applies if all of the requirements are met. You can read about these requirements as well as how the rule works by checking out the value of home when first used to produce income section. Pay particular attention to Erin's rental property example.

 

If you have any on other questions, check out the capital gains tax page on our website.

 

Hope this helps.

 

Thanks,

 

ChrisR