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Liam S.
Liam S.
Seaford, VIC
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My wife and I bought out place 3.5 years ago for 370K. A recent valuation placed it at 650k today. The increase being a bit of luck and some renovations etc. We are considering moving, and deciding whether we hold onto our current place and rent it out or sell it. Could service it and the bank is willing to lend it. What I'm worried about is capital gains tax. Given that we'd probably be planning to sell in 2-3 years, and the appreciation will probably slow, is it better to sell now?

6 years ago

Responses

Hi Liam,
If you are comfortable with the repayments and you are happy to have a tenant live in your home for two to three years, the capital gains tax would be only a small percentage of the increase in value of your property.
You would simply need to get a sworn valuation of the property as at the day you make it available for rent and then the gain is calculated as the difference between your net selling price and that valuation.
I hope that you have spoken with a broker to ensure that the deal the bank is offering is competitive and suited to your needs.
If you have any further questions, please don't hesitate to ask
Best of luck
Scott

Just remember CGT only happens when you sell it.

If the property goes up yes you will pay CGT but so what the property has appreciated.

In all honesty CGT should not be the driver of the reason to sell. The real driver should be will it go up more than the nett payments over the next three years.

Do a cost benefit analysis but CGT is a by product not the reason.

Hope that helped

AJ

the primary residence exemption on selling your home can actually be applied for up to 6 years AFTER you move out. so what you could do is move out, rent the home for a couple of years, sell the house, and claim a FULL CGT exepmtion.
Its a very cool concession.....the reason it is there is because people sometimes move due to work or other reasons, and sometimes it can take ages to sell a house....so the concession is there so that you dont accidentally get stung for CGT on your home due to reasons out of your control.
SO this provides an opportunity to take advantage of these rules.....

BUT!!!! And here is where it can hurt you later on:.....

you can only EVER apply the primary residence exemption to ONE property. so if you move out of house #1, and rent it out, and purchase house #2, then the exemption only applies to one of those properties.....never both at the same time.

I would strongly recommend you talk to a good accountant about this so you know what the potential savings and costs are going to be.

cheers

BC

Hi again,
If you choose NOT to apply the main residence exemption, the gain is NOT calculated based on a sworn valuation. This is a common misconception, and is not how the legislation works.
what needs to happen is that the gain is apportioned between the number of " non-exempt days" "exempt days"

In essence the gain is apportioned across the whole ownership period evenly.

here is a link to the legislation if you are really super keen to immerse yourself:
http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s118.185.html

Alternatively get yourself to a good CA/CPA and get them to explain how it all works:)



cheers
BC

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