Hey guys, got a rather long problem question so just gonna put the relevant facts that relate to the part i am having trouble with.
Peter, an Australian resident has lived in Lindfield, Sydney since 1990, purchased his home for $450,000 (900m2)
From January 2016-2017 he rented out 2 bedrooms (out of 4) on Air B n B.
In January 2017, he subdivided his block into two 450m2, and built a town house while he lived in his existing house. When the townhouse was complete, he moved into it for 6 months, receiving all of his bills, car renewals etc at the new address and then sells it.
while he lived in the townhouse, he rented out the four bedroom house. after selling the townhouse he moves back into his four bedroom house for 6 months - recieving all his mails etc at his new address. In March 2018 he sells his four bedroom house.
Cost to build and subdivide land for townhouse was $500,000. Sold townhouse for $800,000 and sold 4 bedroom house for $1.5 Million.
Discuss
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I've been stuck trying to wrap my head around tax law for a bit, but my answer as of now is going something like this:
In Regards to Townhouse
Peter occupied this as his main residence, indicated by mailing address etc, and therefore when he sells that property it is CGT exempt under the main residence rule.
I did consider the 6 month temporary two main residence rule, but because Peter rented out his 4 bedroom house for income, this does not apply.
I have also been considering whether peter should declare his 4 bedroom house as the main residence under the 6 year absence rule, but not sure if that is worth it because....
In regards to his 4 bedroom house, (this is the part i am most unsure about) Peter didn't rent it out until 2016, so therefore he can use the Home First used to produce income rule, meaning his Capital gain would be significantly smaller (i.e the difference between the market value in 2016 and the 1.5 million sale price, rather than the difference between the $400,000 purchase price and the 1.5 million sale price).
However, its tricky because he only used air bnb to rent out ~50% of the floor space, and then following that he lived in it again while he built town house, then he rented it again. I've been reading ruling etc but i believe i've confused myself somewhat and need a fresh set of eyes.
Peter, an Australian resident has lived in Lindfield, Sydney since 1990, purchased his home for $450,000 (900m2)
From January 2016-2017 he rented out 2 bedrooms (out of 4) on Air B n B.
In January 2017, he subdivided his block into two 450m2, and built a town house while he lived in his existing house. When the townhouse was complete, he moved into it for 6 months, receiving all of his bills, car renewals etc at the new address and then sells it.
while he lived in the townhouse, he rented out the four bedroom house. after selling the townhouse he moves back into his four bedroom house for 6 months - recieving all his mails etc at his new address. In March 2018 he sells his four bedroom house.
Cost to build and subdivide land for townhouse was $500,000. Sold townhouse for $800,000 and sold 4 bedroom house for $1.5 Million.
Discuss
----------
I've been stuck trying to wrap my head around tax law for a bit, but my answer as of now is going something like this:
In Regards to Townhouse
Peter occupied this as his main residence, indicated by mailing address etc, and therefore when he sells that property it is CGT exempt under the main residence rule.
I did consider the 6 month temporary two main residence rule, but because Peter rented out his 4 bedroom house for income, this does not apply.
I have also been considering whether peter should declare his 4 bedroom house as the main residence under the 6 year absence rule, but not sure if that is worth it because....
In regards to his 4 bedroom house, (this is the part i am most unsure about) Peter didn't rent it out until 2016, so therefore he can use the Home First used to produce income rule, meaning his Capital gain would be significantly smaller (i.e the difference between the market value in 2016 and the 1.5 million sale price, rather than the difference between the $400,000 purchase price and the 1.5 million sale price).
However, its tricky because he only used air bnb to rent out ~50% of the floor space, and then following that he lived in it again while he built town house, then he rented it again. I've been reading ruling etc but i believe i've confused myself somewhat and need a fresh set of eyes.
