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Re: market valuation to calculate CGT on rental property

Newbie

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Hello, 

i have recently sold our home which is our principle place of residence which we have owned since 2005. We rented it out for 6 years BEFORE we lived in it. When we moved into the house we undertook a significant renovation which increased the capital and value of the house.

Now that we have sold the house we have made a large capital gain.

 

As it is our principle place of residence i known that we get 50% discount on the CGT and a further discount for the time we lived in the house (9 out of 15 years)

 

i have been told by some that if I get a valuation for the time when we moved into the house (in 2011) I only need to pay tax on the capital gain while it was being rented and not for the whole period

 

is that True? Any advice would be much appreciated.

 

thanks

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Taxicorn

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@MattR1 

 

You will pay CGT only for 6/15 years that you lived there.

 

You will need to decrease the cost base by any capital works that you claimed for the 6 years whilst it was rented out.

 

However, you should be able to reduce the capital gain down to virtually $0 if you add back to the cost base any 3rd Element cost i.e. rates, loan interest, repairs, insurance  etc for the 9 years that you lived there.

 

https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/cost-base/ele...

 

3 REPLIES 3

Most helpful response

Taxicorn

Replies 2

@MattR1 

 

You will pay CGT only for 6/15 years that you lived there.

 

You will need to decrease the cost base by any capital works that you claimed for the 6 years whilst it was rented out.

 

However, you should be able to reduce the capital gain down to virtually $0 if you add back to the cost base any 3rd Element cost i.e. rates, loan interest, repairs, insurance  etc for the 9 years that you lived there.

 

https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/cost-base/ele...

 

Newbie

Replies 0

Many thanks @macfanboy for you help and reply,

Can I just clarify, am I allowed to add back to the cost base 3rd Element costs while I was living in the house or would the house be considered a personal use asset?

The guidance on the ATO website says the 3rd Element costs are:

 

The costs of owning an asset include rates, land taxes, repairs and insurance premiums. You also include any non-deductible interest on loans used to finance:

  • the acquisition of a CGT asset
  • capital expenditure to increase an asset’s value.

You can't:

  • include these costs in the cost base of collectables or personal use assets
  • index these costs
  • use them to work out a capital loss.

Community Support

Replies 0

Hi @MattR1,

 

If a property is originally used to produce assessable income the purchase price and other elements of the cost base will be used when determining cost base. You mentioned you moved into the property after renting it out, which means you would be entitled to a partial exemption.

 

A previous private ruling covers a portion of this, but it's just that - private. This means it's applicable to the entity who applied for it. Here's the outcome they reached:

 

Subsection 110-25(4) of the ITAA 1997 provides that the third element of the cost base of a CGT asset are the costs of owning the CGT asset. These costs include council rates, interest on loans to acquire the asset and costs of maintaining, repairing or insuring the asset. Ownership costs can only be included in the cost base of a CGT asset where the asset was acquired after 21 August 1991 and the costs are not deductible in the year they were incurred.

 

However there is a disclaimer at the beginning of this same private ruling which states: you cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). 

 

If you need further clarification specific to your situation, get in contact with early engagement, or seek your own private ruling.