With the Perth economy yet to fully recover from the impact of the slowdown in the mining industry, investors are left with vacant investment properties. As a result, they have many questions that will help bring closure.
Is It Allowed To Reside In Investment Property?
Yes, you can live in your investment property in Australia. However, doing so may impact your tax benefits, particularly deductions for expenses and capital gains tax exemptions​.
There are two types of properties that one can own in Australia, a primary place of residence (PPOR) and investment property. The law allows investors to live in their investment property, provided they report to the authorities.
A PPOR represents a house or location where an individual lives with their family. On the other hand, investment property generates income or revenue for the owner who can deduct some expenses for tax purposes.
When an investor moves into their investment property, it automatically becomes a PPOR and tax charges cease, as well as any deductions that the owner may have removed. A PPOR is tax-free, with deductions being unallowable.
To move into an investment, the following are stipulated conditions that must be followed:
Notify the Australia Tax Office. With the property becoming tax-free, it is essential to report to the tax to remove any obligations on the property.
Secondly, hire an accountant to help you get released from any tax obligations, and, finally, maintain accurate documents to calculate capital gains tax, when the property is harvested.
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Are There Benefits Of Moving Into Investment Property
Yes. There are several advantages of moving into investment property. First, it is a step towards avoiding rent payments and living tax-free.
Secondly, moving into investment property means that the investor must maintain accurate records from before the property became a PPOR to ensure they pay accurate capital gains tax.
Also, if the owner of the property only occupies a certain part of the property and continues to rent out the house, they can claim some deductible expenses.
Disadvantages Of Moving Into An Investment Property
While allowed by law, the conversion of investment property to a primary residence is disadvantageous to investors. First, investors lose the ability to make any deductible expenses when paying rates.
Second, the investor loses an income avenue, in that, they stop collecting rent immediately after they move into the house.
The third disadvantage is that when they sell the property, they will have to pay capital gains tax on their profit. However, to be exempt from CGT, the investor should live in the property for over six years after making it their PPOR.
Another disadvantage of moving into an investment property is the lowered quality of care that results in lower valuations. As a result, if they do sell the property, they fetch a lower profit and value than if they had left it as an investment property.
Conclusion
As an investment property owner, you are allowed to move to your investment property either temporarily or permanently by making it your primary residence. While it is a personal decision, it is essential to consult experts due to the ensuing tax implications.