# Negative gearing on primary residence?



## saichuen (24 July 2008)

Hi all,

Can you actually negative gear a primary property that you have just stayed for 6 months and then rented it out for the next 6 years (i.e. CGT exempt)? I guess the question is can you claim deduction on the rented property and yet not pay the CGT when you sell it later?

http://www.ato.gov.au/corporate/content.asp?doc=/content/86191.htm

http://en.wikipedia.org/wiki/Negative_gearing_(Australia)

Anyone?


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## subaru69 (24 July 2008)

*Re: Negative gearing on primary residence...*



saichuen said:


> can you claim deduction on the rented property and yet not pay the CGT when you sell it later?




My understanding is: yes.

(Income - deductions) while you rent it out.
Sell or move back in within 6 years and no CGT.

I'm doing this myself. My accountant advised me to get a Quantity Surveyor to give some sort of assessment which means you get (I think) 3.5% of the construction cost every year as a deduction also (as well as agent fees, rates, body corp, maintainence etc).

If I'm wrong can someone please correct me. 

If I'm right, then I'm loving it.


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## Paladin (24 July 2008)

*Re: Negative gearing on primary residence...*

Yep.

What I've done with my place (and please don't think me a wanker for giving details) is rent out the top floor (4 bedrooms) after waiting 6 months post moving in. I now get to live in the place (lower levels - 3 bedrooms) and negative gear half of the whole property, and (so my accountant tells me) have the 6 years to sell CGT free. For me, it's one of the few safe property plays at the moment, effectively halving the interest rate on the mortgage. It's a strategy that seems to work well.

I'm bearish on property at the moment.


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## Paladin (24 July 2008)

*Re: Negative gearing on primary residence...*



subaru69 said:


> Sell or move back in within 6 years and no CGT.




Sell, definitely. Not so sure about moving back in, though. As I understand it (and could be wrong) moving back in doesn't always 'reset' the CGT period, and you can only claim one place as your PPR at a time. Could be wrong on that. I'll check.


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## subaru69 (24 July 2008)

*Re: Negative gearing on primary residence...*



Paladin said:


> What I've done with my place (and please don't think me a wanker for giving details) is rent out the top floor (4 bedrooms) after waiting 6 months post moving in. I now get to live in the place (lower levels - 3 bedrooms) and negative gear half of the whole property, and (so my accountant tells me) have the 6 years to sell CGT free. For me, it's one of the few safe property plays at the moment, effectively halving the interest rate on the mortgage. It's a strategy that seems to work well.
> 
> I'm bearish on property at the moment.




Couldn't you just have your tenants 'board' with you? Using this strategy you might not be able to negatively gear but you can do it indefinately.  You can still give a 'rent slip' to the tenant if they need one for tax or whatever.  I've never done it myself but I know people here in Brisbane that cram 6 Asian students into their house as 'boarders'.  Apparently 6 is the cut-off before the ATO says it's some sort of business.

Wouldn't touch property currently either, I'm trying to convince a mate not to spend his $100K deposit for a $500K 'doer-uper' in the 'burbs.


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## subaru69 (24 July 2008)

*Re: Negative gearing on primary residence...*



Paladin said:


> moving back in doesn't always 'reset' the CGT period, and you can only claim one place as your PPR at a time.




My understanding, which is by no means gospel, is you can only have 1 PPR but you can move back in (for as short as 1 day) and the 6 years resets.  Can't remember who told me or where I read it - so with that kind of confidence I think I probably should check with the ATO before :fan.


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## Paladin (24 July 2008)

*Re: Negative gearing on primary residence...*



subaru69 said:


> My understanding, which is by no means gospel, is you can only have 1 PPR but you can move back in (for as short as 1 day) and the 6 years resets.  Can't remember who told me or where I read it - so with that kind of confidence I think I probably should check with the ATO before :fan.




You might be right, actually  I'm seeing the accountant tomorrow so must remember to ask.


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## Paladin (24 July 2008)

*Re: Negative gearing on primary residence...*



subaru69 said:


> Couldn't you just have your tenants 'board' with you? Using this strategy you might not be able to negatively gear but you can do it indefinately.  You can still give a 'rent slip' to the tenant if they need one for tax or whatever.  I've never done it myself but I know people here in Brisbane that cram 6 Asian students into their house as 'boarders'.  Apparently 6 is the cut-off before the ATO says it's some sort of business.
> 
> Wouldn't touch property currently either, I'm trying to convince a mate not to spend his $100K deposit for a $500K 'doer-uper' in the 'burbs.




I'm in Brizzie too! Boarding is great - but I make a little too much money off renting upstairs to go under the radar (I, too, target students - being a short bus ride from the bottom of my street to UQ) and the funds go through my bank account. I wouldn't not declare it. Too risky. 6 people is the cut off where you become a boarding house for local council and need to comply with all sorts of things - but it's not an ATO threshold that I'm aware of. If you just rent one room in your house out you should strictly speaking (again, from what I remember talking to my accountant about this last year) be declaring the income and gearing the mortgage/rates/insurance/depreciation etc etc etc on a pro rata square meterage basis. I'd get your friend to call the ATO (from a phone box far away from where s/he lives, with a voice scrambler in place) to confirm that.

And, lordy, a $400k mortgage in this current environment for a mortgage-belt fixer upper is brave. I've done well from property (buy/reno/sell), but I see its growth as limited in the medium term, hence my trying to get my head around shares. And heaven help those sitting on that kind of LVR if there's a severe inflationary correction any time soon.


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