PPOR with six year absence purchased 5 July 1991, rented July 2001

Question

Purchased house and lived in it 5 July 1991

Moved to USA and rented it 5 July 2001

Moved back to AUS in 2010
but did not move back into PPOR (did not have another PPOR)

Sold PPOR 7 Nov 2011

Question: Do I use reset cost base as at 5 July 2001 and if so, am I able to use a Real estate letter of valuation (550-570,000), which is all I have due to misinformation from my previous accountant. (I have a valuation but it is for 680,000 dated in 2007). I also have a comparable sale documented for the house next door which sold in late 2001 which is 600,000 and higher than the Real Estate valuation, but was a similar property in most aspects.

I assume if I use reset value of say 570,000 that I can only add selling costs to this figure to reduce cost base.

I used your CGT calculator and utilised the 6 year exemption giving me 40% pro-rata.

thanks

Answer

The way it will work is:
5th July, 2001 section 118-192 will reset the cost base to market value at that date because up to that date it was fully covered by you main residence exemption and at that date it first produced income. It also resets your acquisition date so from that point forward anything before 5th July, 2001 is ignored.

I am going to assume it was rented for the whole period from 5th July 2001 to 7th Nov 2011

Market value – this is best set by a valuer so that the ATO is unlikely to override it. The ATO do have their own valuers. The valuer will look up records of sales of similar properties at the time you first rented it out. So they may well come back with the value of that house you mentioned. If you have evidence of that house’s sale you may choose to use that amount and only bother paying a vauler if you get audited and the ATO question the value. There is no rush if you are confident of the value as the data will always be there for the valuer to check. The only problem would be comparing that house with yours many years later. As the valuer’s report would list sales in the area and then compare your property with them this would include state of repair of course. Do you have lots of photos? The actual sale data you have is more reliable than a real estate valuation. But usually those valuations list other properties that have sold as supporting evidence. It is your call. As it is not my money you are spending then my advice is get a valuer in the sooner the better because then you can never look back and say I should have been more careful and told you that. Nevertheless, I want you to understand that that is a conservative view.

You put this valuation in at the start of the calculator then reduce it by the value of the plant and equipment at that time. This would be available as the starting balance in your depreciation schedule for your 2002 tax return, when you first rented the property out. Note you also have to do this with the selling price, again just use the closing balances in the depreciation schedule at the date of sale.

You can increase the cost base by any ownership costs and improvements or legal costs etc – just about anything even plants, cleaning materials etc but they can’t have been claimed already as a tax deduction

Section 118-145 will allow you to continue to cover the property with your main residence exemption until 5th July, 2007, while it is earning income but the reset happens back when you first rented it.

So the property can be covered by your main residence exemption up to 5th July, 2007. There is one leap year in there so that is 2191 days. From then until the 7th Nov 2011 is 1586 days. I get 42% of the capital gain from market value at 5-7-2007 plus selling costs and anything else not claimed as a tax deduction to selling price. That is assuming you have not been claiming any building depreciation.

Thank you for buying the calculator I hope you find it useful and informative.

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