November 2008
Our panel of experts answers property investment questions from API readers. For more Q&As, see this month’s API magazine.
Can I claim it?
Q: I bought my first home in December 2007 in Strathfield, NSW and claimed the $7000 First Home Owner Grant. I then permanently moved out of the property in February 2008 and have since lived in my girlfriend’s house. My mail still goes to the Strathfield unit. I’ve rented out the property since February 2008 and am getting $500 per week in rent, but I didn’t go through a real estate agent. I’m now paying approximately $700 per week in interest and maintenance. Can I treat this unit as my investment property in the 08/09 financial year, since I’ll be renting it out for the whole financial year and claim tax deductions for the $200 per week loss as the result of negative gearing? If not, what should I do to change the nature of the ownership and make it my investment property, but not my home?
A: You can treat this unit as an investment property and will be able to claim 100 per cent of the deductible expenses as long as you are charging the market rate of rent, which it seems you are. The big advantage to you in this situation is that your unit can remain capital gains tax free for six years if you nominate it as your PPOR, while still renting it out as a negatively geared investment property. Pat Mannix
An unexpected situation
Q: We are unable to move into the home we’ve just purchased because of safety reasons for our child, but we’ve had the power switched on etc. because it was our intent to live there. Given the state of the building we decided to lodge a development application to have a new home built but a complaint was lodged against it and the matter is going to court. In the interim we temporarily reside in one of our investment properties which is too small for our family. We’re now up for land tax on the property we’re rebuilding to live in. The land tax on this property is five times that of the investment property. My child has a health condition that requires her weekly routine to remain unchanged. If we’re unable to move into the property that will be of our dreams but through reasons of environmental law and family health why can’t we claim that property as a principal place of residence?
A: Your situation is very unusual. My first impression is that if your new house is unfit for occupation, the builder should be sharing some of the pain you’re suffering as a result.
Land Tax is levied on the owners of land in NSW as at midnight on December 31 of each year. In general, your principal place of residence (your home) is exempt from land tax. If you move out of your home and move into another residence that you don’t own (for example, if you move to work interstate), you may be able to claim an exemption from land tax for a maximum period of six years. However the exemption is strictly applied in very limited circumstances.
The exemption will only apply if:
- You have used and occupied the property as your principal place of residence for a continuous period of at least six months.
- You don’t own and occupy another principal place of residence worldwide.
- Within six years after moving out, you resume use and occupation of the premises as your principal place of residence for at least six months.
- The total period in which you receive income from leasing the property does not exceed six months in a calendar year.
- Income derived from leasing the property during your absence is no more than is reasonably required to cover rates, water and electricity charges and similar outgoings (but not mortgage repayments).
On the information you have provided you would be excluded from claiming the exemption to land tax on the basis that you haven’t used or occupied the premises as your principal place of residence for at least six months.
The only good news is that land tax can be claimed as a tax deduction. You should be able to claim the land lax you have now paid in your next tax return.
I agree with you that this does appear to be an unfair result and it may be worth writing to the Tax Office and trying to appeal its decision to charge land tax in your case. Karen McGlinchey
For more Q&As, see API magazine.
Have a question? If you have a question you’d like to ask our panel of experts, please send it to: editor@apimagazine.com.au Please keep questions to 150 words or less.
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Meet the panel
Pat Mannix, CPA, Gatherum-Goss & Associates, www.gatherumgoss.com
Karen McGlinchey, principal and lawyer, McGlinchey and Associates Lawyers
