Capital Gains Tax on main property if rented out

[Bridgeman]

For the past 2 years my son has rented out his large house and rented a smaller one to save money. Does anyone know the rules with regard to CGT if he now sells the house. This is the only residence he owns and up until he rented it our he lived in it.

[Suzukiscottie]

It's taxable income. So it needs to be reported on his tax return.

 

 

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Sorry, my bad! I didn't read the question properly.

[Gbye grey sky]

The final 36 months are counted as though you have lived there as long as you can show it was your primary residence before then. If he sells within 3 years of starting to rent it out there is no CGT payable. He may need to be more aware of tax on the rental income however he can deduct mortgage interest and other expenses of course so that could be nil tax also.

[Gbye grey sky]

I should have said these are UK rules, don't know about Oz rules.

[Bridgeman]

Thanks, we are all in Oz so Oz rules would apply.

[Alan Collett]

http://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/

 

This might help ...

 

Best regards.

[Rupert]

http://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/

 

This might help ...

 

Best regards.

 

It's helpful but not crystal clear is it, no wonder people have trouble. It doesn't clearly cover the scenario of the individual only owning one property.

[purpleal]

We had the same issue, when we bought our house, it was tenanted. My understanding is that we are liable for CGT for any gain in the property's value from the time it was rented out until the time it is sold or we moved back in. So for e.g we bought the house for $960,000 when the tenant moved out and we moved in, the house was for examples sake worth $980,000 - we would then be liable CGT on the $20,000 difference. The upside is that your son should be declaring the income to the ATO, even if running at a loss ie the rent is less than the mortgage. All interest, and other property expenses such as rates/taxes, land tax, water etc are tax deductable and usually mean a nice tax refund at the end of the tax year.

[Alan Collett]

We had the same issue, when we bought our house, it was tenanted. My understanding is that we are liable for CGT for any gain in the property's value from the time it was rented out until the time it is sold or we moved back in. So for e.g we bought the house for $960,000 when the tenant moved out and we moved in, the house was for examples sake worth $980,000 - we would then be liable CGT on the $20,000 difference. The upside is that your son should be declaring the income to the ATO, even if running at a loss ie the rent is less than the mortgage. All interest, and other property expenses such as rates/taxes, land tax, water etc are tax deductable and usually mean a nice tax refund at the end of the tax year.

 

 

* Did you occupy the property as your main residence before it was let? It can make a lot of sense CGT planning-wise to do this.

 

* Do you have a depreciation schedule in respect of fixtures, etc? This schedule allows a further claim as to deductibles from the let property.

 

* Have you discussed the CGT and Income Tax issues with a tax accountant?

 

Best regards.

[Alan Collett]

It's helpful but not crystal clear is it, no wonder people have trouble. It doesn't clearly cover the scenario of the individual only owning one property.

 

 

That's why people engage tax accountants, Rupert - unless you are only in receipt of PAYG salary tax often isn't for the faint hearted!

 

Best regards.

[purpleal]

* Did you occupy the property as your main residence before it was let? It can make a lot of sense CGT planning-wise to do this.

 

* Do you have a depreciation schedule in respect of fixtures, etc? This schedule allows a further claim as to deductibles from the let property.

 

* Have you discussed the CGT and Income Tax issues with a tax accountant?

 

Best regards.

 

Hi Alan,

No, we didn't move into the property before it was let. The property was put up for sale by the previous owners with the tenant still in it. We loved the house though, and we were tied into a new lease so the circumstances suited us.

We do have a tax accountant looking after our affairs - and as far as I am aware, we have claimed as much as we possibly could with regards to depreciation, expenses etc.

The house was only rented out for 9 months after we bought it and when we moved in had a few agents come round and provide us with updated, current value in writing - The market hadn't really moved and the values we were provided with are pretty much on par with what we paid for the property. The highest valuation was only $5,000 more than what we bought the house for. My Understanding was that we only needed to pay tax on any gain on the purchase price from buying the property and what it was when we moved in?

 

Regards, Purpleal