Browse Forums General Discussion 1 Aug 11, 2009 8:34 pm Hi everyone We're just about finished building our house and we are contemplating selling as we can see interest rates rising and it becoming a struggle for us... We've owned the block since January - just wondering would we be liable to pay CGT and if so how much and how is it paid? thanks! Re: Capital gains tax question 3Aug 11, 2009 8:37 pm Casa2 Have you ever lived at the site? no we havent, its just been a building site - will be finished in approx 4 wks Re: Capital gains tax question 4Aug 11, 2009 9:24 pm sorry, northernspirit, but as it has never been your principal place of residence, I think it would be viewed as an investment and be subject to CGT - also the CGT is taxed on the full profit if you sell in less than 12 months, only on 50% if longer than 12 months.( in SA anyway) I think CGT is a federral tax so this would be the same in all states. As to how much is paid, you pay CGT on 100% or 50% of the profit depending on time property has been held and you pay it at your top tax rate. If it is owned in joint names, the profit is split in two and each party pays their portion at their top tax rate - handy if one of you is on a very low or zero income,(say, a SAHM) you might pay almost no tax on that portion. Im sorry you cant keep your house - is there no way you can manage it by taking in a boarder for a while? Re: Capital gains tax question 5Aug 11, 2009 9:31 pm I think you need to explore all options.
Can you make it your PPOR for say 6-12 months? Can you make IO repayments only? I think you need to do a costing scenario both ways. Work out the tax payable. Gain/2 if built in joint names Then apply your marginal tax rate to that figure for both. Compare that to say interest over a 12 month period. Be careful about CGT discount? Ring ATO for this explanation Re: Capital gains tax question 6Aug 11, 2009 9:33 pm Capital gains would be paid on the profit. So your cost base would be the cost of the land, building and all those Council, engineering, etc fees that you paid along the way. I hope you've kept receipts. If you live in it for a while, you probably would not have to pay any capital gains tax. I don't think interest rates will rise until next year and then by only one percent. Of course nobody knows what will happen with interest rates, but I see it being low for some time to come. Demolition August 2009, Construction Started September 2009, Completed December 2010 Re: Capital gains tax question 7Aug 11, 2009 10:28 pm Thanks for the replies everyone theyre great... We do have some room to move and the option of re-financing (depending on what the bank valuation is i guess) - its actually not the mortgage thats the problem its our personal loans and if the interest rates do go up then we may have an issue down the track (we're trying to look beyond this low cycle in the interest rates) We will get in touch with the ATO to discuss as suggested, we are able to stay 6-12 months so it might be the best option by the looks of it What we we're thinking of doing is using the profit made on the build to eliminate all of our debt but it looks like this may have to wait for a while. Re: Capital gains tax question 8Aug 11, 2009 10:52 pm If you don't currently own any other properties that you are using as your main residence you may be able to nominate the property you're building as your main residence hence avoiding capital gains tax through the effect of the main residence exemption. You should contact your tax advisor to discuss this further and obviously if you can live in it for a small period of time it would be helpful. One thing to note is that there is no time limit you actually have to live in the property for it to be considered your main residence. Just remember if you have qualified for any of the first homeowners grants/exemptions these may need to be repaid if you don't meet their individual requirements. Re: Capital gains tax question 9Aug 11, 2009 10:57 pm Jollie If you don't currently own any other properties that you are using as your main residence you may be able to nominate the property you're building as your main residence hence avoiding capital gains tax through the effect of the main residence exemption. You should contact your tax advisor to discuss this further and obviously if you can live in it for a small period of time it would be helpful. One thing to note is that there is no time limit you actually have to live in the property for it to be considered your main residence. Just remember if you have qualified for any of the first homeowners grants/exemptions these may need to be repaid if you don't meet their individual requirements. we dont own any other properties, we are currently living with famiy while its being built - not first home buyers either. Re: Capital gains tax question 10Aug 11, 2009 11:09 pm one option for you to consider would be for you to move into the property for a small period of time which clears up any main residence questions. If down the track the repayments get a little too much for you when combined with your other debt you could look at renting the property out. If you were to do this then the main residence exemption would continue to apply for 5 years after you move out avoiding CGT (once again provided you dont own any other property during that time which you use as your main residence). Other options to consider would be as other people have said going interest only, or alternatively looking at whether or not your lender will allow you to fix the rate (usually for a small fee). Re: Capital gains tax question 11Aug 12, 2009 11:30 am Well we have contacted the ATO who advised that if we move into the house once its been built and live in it as our primary residence we are exempt from CGT even if thats just for a short time, i.e: 3 months. The other option is if we didnt move in and would be liable for 50% CGT if we have held the asset for 12 months which would be January 2010. So the first option is the one to go for without doubt, we feel confident either way we will be fine so thankyou all for your feedback. the exemption applies only to your principal place of residence - so you must live in it. The 200 days is continuous. You also have to apply for the exemption. 2 11108 If it's your primary residence then there is no tax deductions to be made. 4 101404 thank you! do we need to get this or our builder before we commence new build on the block? 2 4419 |