Capital gains liability starts the day you move out
Question: We have been living in a unit for three years and are going to be moving to our house soon. Our plan is to rent out our unit for about three years and then sell it. Will we have to pay capital gains, and if so, is it just on the time that we rent it out?
Answer: If the unit has been your principal place of residence you will be liable for capital gains tax on any increase in value from the date you move out to the date the sales contract is signed. Get a written valuation as soon as you vacate the property.
Question: Eight months ago my wife and I bought our apartment for $480,000, with a mortgage of $330,000. We have a combined household net income of $140,000. My wife owns a freehold investment property worth $350,000. We put as much as we can into our mortgage but we wonder if there would be a more tax advantageous way to structure the two properties. Most reading I've done indicates the primary residence should be mortgage free while investment properties can be mortgaged. Would it be beneficial to split the mortgage over the two properties to reduce interest payments?
Answer: Yes, it's ideal to maximise your deductible debt and minimise your non-deductible debt but you can't re-write history. An option may be to split the loan so that the loan on the investment property is on an interest-only basis, to make it easy for tax purposes. You could then pay the gross rental income into the non-deductible housing loan, while borrowing for the rates and other ongoing costs on the investment property. The only other option is to sell the investment property, use the proceeds to reduce the debt on your home and then borrow back for more investment. Unfortunately if you do this capital gains tax may take a big chunk of your capital.
Question: As of next year I will be starting life in the “real world”, on a salary of $52,000. Given that I am quite prudent with my spending, what salary will be sufficient to buy a property worth about $450,000?
Answer: I am very wary about basing borrowing capacity on income because spending varies greatly between individuals. A better option is to do a budget to work out how much you can afford to spend on loan repayments after taking into account ownership costs, such as rates and insurance, of at least $60 a week. You could then work on $8 a thousand for home repayments, which means that every $800 of loan repayment would get you $100,000 of loan.