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CGT tax on previously rented primary place of residence

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Newbie

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I am confused regarding the CGT rules that would apply in my situation:

I built a house in 1995 and lived in it for nearly 4 years, then rented it for 19 years while I lived in another city in a purchased property/ppr) before moving back in (after some renovations) in late 2017. 

If I sell in the future, let's say about 10 years, is CGT payable and how would it be calculated?

I have read about the 'six year rule' which I clearly don't meet but am not clear how the home would be treated now that it is my PPR again and will continue to be my PPR. 

If there is to be a CGT liablility when I do eventually sell, is it helpful to have a valuation done at the time I ceased rental of the property/ before I did renovations and moved back in? I do have a valuation done before I commenced rental of the property. Thank you.

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ATO Certified

Taxicorn

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@Calico 

 

The capital gain will be calculated based on whether you decide to nominate your 'other' house as your primary place of residence or not and for how long.

 

If you decide to nominate your 'other' house as your primary place of residence then CGT will apply for the old house for the number of years that it was not your primary place of residence (1999 onward) divided by the number of years that you own it.

 

Cost base will be the value of the property when it was initially rented out.

 

 

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Taxicorn

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@Calico 

 

The capital gain will be calculated based on whether you decide to nominate your 'other' house as your primary place of residence or not and for how long.

 

If you decide to nominate your 'other' house as your primary place of residence then CGT will apply for the old house for the number of years that it was not your primary place of residence (1999 onward) divided by the number of years that you own it.

 

Cost base will be the value of the property when it was initially rented out.

 

 

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Newbie

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Thank you macfanboy - that is helpful. I still just want to clarify a couple of things. Do I need a valuation for the date when it ceased to be a rental property? It sounds like a no. 

Are you saying that the capital gain is calculated as the difference between the value when the property was first rented out (cost base) and the value when it is eventually disposed of/ sold, divided by the number of years it was principal place of residence, including the 4 years prior to rental? And would CGT then be 50% of that calculation because it has been held for more than a year? In other words, if it ends up to be PPR for 20 years and was rented for 19 years, there is no CGT to pay? I guess I just presumed it would be more accurate to get a valuation for the date it ceased rental and then it is the clear cut difference.

Also before we moved back in we spent a year renovating it, with no rental income but it was not our primary place of residence. Am I right in presuming that year is still counted for CGT because it was not PPR?

Just out of interest, does that mean that holiday houses are still subject to CGT even if not rented out at all (presuming they are not designated as PPR)?

Thanks in anticipation of your help on this.

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Taxicorn

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@Calico 

Do I need a valuation for the date when it ceased to be a rental property?

No

 

Am I right in presuming that year is still counted for CGT because it was not PPR?

Yes Normally you can not have more than 1.

 

Capital Gains tax is an extremely difficult tax to calculate and you would be best to engage a tax professional to ensure that it is done correctly.

 

There are many things that you can include in your 'cost base' to increase it to reduce the CGT and there are things like Capital Works Deductions that you have to add back in.

 

https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Cost-base/Ele...

 

For example the 'holding costs' of the time you spent renovating it would be added back in i.e. loan interest, council rates, water rates, etc.

 

There are also ways to reduce the tax paid by utilizing roll-forward concessional super contributions.

 

 

 

 

does that mean that holiday houses are still subject to CGT even if not rented out at all (presuming they are not designated as PPR?

Yes.

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Newbie

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Thank you macfanboy - that clarifies things a lot!

Last question, I promise - I've read about the capital gain being divided by 50% if the property is held for more than a year. Does that apply in this case?

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Taxicorn

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@Calico 

 

Yes, and it is divided by the number of people listed on the title if joint tenants or by the ratio if tenants in common.