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ayman · 10-19-2004, 23:03

Just wondering if some of us here have experience in Tax issues:
I bought a house 4/04 as my first home, got the $7000 grant shortly after. I still live in the same address. I'll be moving out from Sydney to North Cost for my work which starts Jan 05.
Do I have to keep it locked until a whole 12 months passed?Can I rent out that property as an investment and negative gear it?I'm expected to stay at the North Cost for about 2 years or so, depends on circumstances.

Cheers.

JEM · 10-20-2004, 00:07

Ayman

You wouldn't have an issue in negative gearing it, but because you haven't lived in it for 12 months, you would have to pay capital gains tax if you were to sell at some later stage.

Mr Sparkle · 10-20-2004, 01:56

Quote:

Originally Posted by ayman

Just wondering if some of us here have experience in Tax issues:
I bought a house 4/04 as my first home, got the $7000 grant shortly after. I still live in the same address. I'll be moving out from Sydney to North Cost for my work which starts Jan 05.
Do I have to keep it locked until a whole 12 months passed?Can I rent out that property as an investment and negative gear it?I'm expected to stay at the North Cost for about 2 years or so, depends on circumstances.

Cheers.

I lived in the house I bought for 12 months, but there was NO stipulation that I had to be there for that long. A few months ago I received a letter where I had to provide proof I had lived at that address ** AT SOME TIME ** in the first 12 months of ownership, NOT FOR 12 MONTHS! I had to provide them with two or more certain documents, which included water rates, council rates, electricity bills and one or two others. This means as long as you have 2 of these documents from that address, dated at any time in the first year of ownership, you'll be covered. The rest of the time, you can rent it out and negatively gear it.

XcelR8 · 10-20-2004, 03:44

Quote:

Originally Posted by JEM

Ayman

You wouldn't have an issue in negative gearing it, but because you haven't lived in it for 12 months, you would have to pay capital gains tax if you were to sell at some later stage.

You don't have to live in the house at all, just make sure all your paperwork says you did. Simple.

JEM · 10-20-2004, 05:11

yes that's if you want to operate in that way.

Not for me, got too much to lose.

GTP151 · 10-20-2004, 06:20

Quote:

Originally Posted by JEM

Ayman

You wouldn't have an issue in negative gearing it, but because you haven't lived in it for 12 months, you would have to pay capital gains tax if you were to sell at some later stage.

Not necessarily,

There is an exemption under the CGT legislation that you can leave your principal residence for up to 7 years and still claim the principal residence exemption. The proviso is that you and your parther must not then take up a new principal residence, but you could rent.

Negative gearing may work but you need to get it right, ATO area of investigation this year.

First home owners, no you don;t have to live there 12 months, but you do have to at least take up residence there and you can only get it once and it cannot exceed what you pay for the house.

Steven

XRchic · 10-20-2004, 06:21

Quote:

Originally Posted by Mr Sparkle

I lived in the house I bought for 12 months, but there was NO stipulation that I had to be there for that long. A few months ago I received a letter where I had to provide proof I had lived at that address ** AT SOME TIME ** in the first 12 months of ownership, NOT FOR 12 MONTHS! I had to provide them with two or more certain documents, which included water rates, council rates, electricity bills and one or two others. This means as long as you have 2 of these documents from that address, dated at any time in the first year of ownership, you'll be covered. The rest of the time, you can rent it out and negatively gear it.

Yes, Sparkles is correct. According to the legislation, you only have to have lived in it "at some time", not for 12 months at all. Its actually a very common thing to do: buy your first house when you are living with your parents, live in it and get a couple of bills sent there in your name.... move back in with your parents and rent it out. I actually rang the authorities and checked this with them to verify, it's perfectly legal.

I think many people get the 12 month thing confused with say Homestart Loans (thats in SA, dont know what they are called anywhere else) where there IS a minimum time you have to live in it, ie 12 months, or maybe longer such as 2 years.

XRchic · 10-20-2004, 06:25

Quote:

Originally Posted by GTP151

Not necessarily,

There is an exemption under the CGT legislation that you can leave your principal residence for up to 7 years and still claim the principal residence exemption. The proviso is that you and your parther must not then take up a new principal residence, but you could rent.

Negative gearing may work but you need to get it right, ATO area of investigation this year.

First home owners, no you don;t have to live there 12 months, but you do have to at least take up residence there and you can only get it once and it cannot exceed what you pay for the house.

Steven

Correct re CGT. And correct re ATO: every year the ATO do fairly large scale property investment audits... the bigger the boom is, the more they focus on negative gearing at tax time.

ayman · 10-20-2004, 23:23

Quote:

Originally Posted by GTP151

Not necessarily,

First home owners, no you don;t have to live there 12 months, but you do have to at least take up residence there and you can only get it once and it cannot exceed what you pay for the house.

Steven

Sorry Steven, not sure I understand the last bit.
I was surfing thru the ato website, I remember reading something about you can rent it out for upto 6 years or so without affecting your capital gain.If u rent it out longer, u'll pay tax on exceeding time.
ie: If I rented it out for 7 years, and the capital gain after I sold it was say $70K, I pay tax on $10.000
Is that Right??
And thanks everyone for your help.

XRchic · 10-21-2004, 03:23

Quote:

Originally Posted by ayman

Sorry Steven, not sure I understand the last bit.
I was surfing thru the ato website, I remember reading something about you can rent it out for upto 6 years or so without affecting your capital gain.If u rent it out longer, u'll pay tax on exceeding time.
ie: If I rented it out for 7 years, and the capital gain after I sold it was say $70K, I pay tax on $10.000
Is that Right??
And thanks everyone for your help.

Basically you pay CGT on anything property you sell except for you own residence. If you get a house and rent it out, you can still count it as your residence if you rented it out for no more than 7 years, and if you dont buy yourself another house to live in in the meantime (which will then become your residence)... So if you wanted to rent it out, you would have to rent yourself, or move back in with parents or something for years, and then move into it after 7 years max, to avoid incurring CGT when you sell it (CGT is whatever your marginal tax rate is). If you dont ever sell it, CGT wont be an issue.

Im not sure if the CGT is apportioned - ie to the amount of time you exceeded the 7 years, or just that after the 7 years, it is no longer considered your principal residence and then becomes a CGT asset....