Real Estate Tips: Building A New House

Posted on October 21st, 2008 | by John Glenn |

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Most of the couples contemplate building a new home and renting out their old PPR (Primary Place of Residence), but are in doubt about the ATO’s (Australian Tax Office) rules as per the deductibility of the interest on each property’s mortgage.

If you ask yourself, which property is gaining “assessable income” the answer will be obvious. Interest on the old home will now be deductible, as it is now earning assessable income but no more the new home, as it is not earning assessable income.
Always keep in mind the general principle of taxation; if the receiver is taxed on the receipt of the income, the payer will be able to claim a deduction, but if the receiver is not taxed on the receipt the payer will not obtain a tax deduction.

WHAT IS YOUR INTENTION

• If you move into the house as soon as practical after you purchase it the house is deemed to be your PPR from the time you acquired it. Further, if at the time of buying your new house you have not yet sold your old house they can both be your PPR for up to 6 months, as long as you have lived in your old residence for at least 3 continuous months within the last 12 months.

• If you earn income from your PPR at the time you are living in it you will be accountable for some CGT calculated as per that percentage of your home owed for private use.

• In the event of any improbability about which is your PPR the ATO will require you to answer the following questions –
1. Where is the electricity and phone connected in your name?
2. What is your address as per the electoral roll?
3. Where are your personal effects?
4. What is your address for mail deliveries?
5. Where does your family live?
6. How long have you have lived there?
7. Your reasons for live in the home.

• You can elect to have vacant land or a lodging being repair classed as your PPR for a period of up to 4 years, granted you do not have another PPR. However, you must shift there immediately after the building is completed and live there for at least 3 months before put up for sale.

OWNING A HOME IN A TRUST

The most important motive behind of not purchasing your own home in a trust is because it will not be enjoy the PPR (Primary Place of Residence) exemption.

FAMILIES

Spouses and their children, under the age of 18 can only have one PPR between them, doesn’t matter where they live. Spouses can elect to claim their spouse’s PPR as even if they never lived there and even if their name is not on the deed. If both spouses choose to live in separate homes to be their PPR then only they can get the half exemption on each place.