Capital Loss on Owner Occupied Property

cowboydev on 21/03/2023 - 20:36
Last edited 23/03/2023 - 13:29 by 1 other user

I have recently sold my apartment property at a loss unfortunately and moved to my wife's property. I have been told by friends that owner occupied properties are not eligible for claiming capital loss but when I read the ATO website it's a bit unclear.

ATO mostly talks about capital gain event and advising on how to be exempt from paying tax, in my case I don't want to be exempted as I want the loss to offset future gains if that make sense.

I am thinking of claiming the loss this year and telling ATO I have other main residence and the sold property was used for work to generate income, not sure if that's how it works so I want to hear from OzBargains experts.

Thanks guys!

Edit 1: I am not thinking of fraud, lots of false assumptions in the comments but I know you guys have lots of knowledge in this so I just wanted to know what my options are, that's all, thanks again!

Edit 2: Thanks for all the comments, especially caramellokoala for pointing out the actual rules for capital loss, it has nothing to do with PPOR / main residence to begin with. I will confirm with an accountant in EOFY but it definitely felt a lot more difficult than expected to get an answer from this community but still thanks to you all! Have a good one.

Edit 3: Thanks to mungas as well for coming in and providing some advice as a tax specialist! Again it's different to all the other advice which I will be confirming with one or more accountants just to make sure I am doing the right thing.
I think that's pretty much the end of this post, learnt that internet comments can really hurt but the dumpster fire was entertaining in a way.

Financial

Comments

- MrMarket on 22/03/2023 - 10:14
  
  no what he is asking he live there and sold at a loss can he arbitrary claim it is not his PPOR and claim tax loss
  the answer is no he has to proved that it is an investment properties and not PPOR and based on the information
  at hand it is clearly a PPOR and he cant claim tax loss
  - pjetson on 22/03/2023 - 11:57
    
    I'm not sure that PPoR enters into it, except when you're trying to get a CGT exemption. Likewise with it being an investment property or not - how does that matter? It's just an asset, whether it's a house, a helicopter, or a tropical island.
    
    If you make a capital gain on the sale of something, you have to pay tax on that capital gain. My non-tax-accountant view is that if they're going to get you for a capital gain, then they also have to allow you to claim a capital loss.
    
    Maybe I'm right, maybe I'm wrong. The only opinion that counts is that of the Tax Commissioner.
Seraphin7 on 22/03/2023 - 11:20

What a dumpster fire this turned into!
- cowboydev on 22/03/2023 - 11:50
  
  Expected? not? hahaha
  - techlead on 22/03/2023 - 20:07
    
    +1
    
    I thought property only goes up, how it is possible to take a loss? Is OP trolling?
    - cowboydev on 22/03/2023 - 21:47
      
      +2
      
      Oh I wish I was just trolling, if property only goes up then that would be the safest investment out of everything, right?
      
      But just to point it out, apartments have been suffering a lot of different issues that contributed into the property price.
      
      It all started with Grenfell Tower in the UK, 72 people lost the lives due to the type of cladding that was used in that building, then Australia started to panic and found out many many apartments here used the same type of non-compliant material.
      
      The extreme examples in Sydney are the Opal Tower and Mascot Tower, both had major issues but Mascot Tower is still empty as of today. Although government and developers are paying the owners millions of dollar for compensation.
      
      Many other apartments are going through supreme court suing government and developers, well, some win and some lose.
      - techlead on 23/03/2023 - 13:13
        
        @cowboydev: I get you point, definitely agree. There's an area in Sydney known as the swamp triangle on which the Opal and Mascot Tower sits, I would not live in that area at all, apartment or house, let alone invest in a property in that triangle.
        
        I was trolling in my previous comment. :)
        
        cowboydev on 23/03/2023 - 13:41
        
        @techlead: Hahah all good, some people really think properties only go up because no one talks about their loss, similar to the share markets and crypto currency.
        
        I actually have never heard of this swamp triangle thing lol, but I wouldn't think any of this applies to houses, because houses only go up…. :)
        
        techlead on 23/03/2023 - 13:52
        
        @cowboydev: Olympic park used to be swamp land, when they were building the Sydney 2000 Olympic stadiums there was a campaign to save some frog which lives in those swamp lands. It's not a good area to live anyways.
        
        Research the area, don't touch anywhere which used to be a swamp.
        
        cowboydev on 23/03/2023 - 14:03
        
        @techlead: Ohh right I didn't know about the swamp land, that's good to know. I avoided Olympic Park mostly because of Rhodes, from memory it used to be industrial or was a landfill, either way it's a contaminated area.
        
        Well I have a little one so hopefully we will find a house with enough space plus some good schools nearby in the next few months.
Mentallysick on 22/03/2023 - 17:19

Capital losses from the sale of a primary residence cannot be used to offset capital gains from an investment property. This is because the tax treatment of capital gains and losses on primary residences is different from that of investment properties.

When you sell your primary residence, any capital gain or loss is generally exempt from capital gains tax (CGT) under the main residence exemption. However, if you sell an investment property and realize a capital gain, you will generally be required to pay CGT on the gain.

If you have capital losses from the sale of an investment property, you can use those losses to offset any capital gains you make in the future, including capital gains from the sale of another investment property. However, you cannot use capital losses from the sale of a primary residence to offset capital gains from an investment property.
xavster on 22/03/2023 - 18:56

+3

Hi mate,

Please go talk to your tax accountant, make sure you bring a record of your WFH on this property and the time and duration of your residence in each of your properties. Also bring all the bills (gas, water, electric, internet) and an approximate room area for your WFH office so they can work out a percentage area.

I do not know your exact situation but it sounds like there should be some area you can definitely claim.

Ignore all the other people here, they do not know your specific situation.

Source: I own an accounting firm.
- cowboydev on 22/03/2023 - 21:51
  
  All good! It was much harder than expected especially due to the first group of people who commented, but we got there at the end!
  
  Thanks and have a good one mate.
techlead on 22/03/2023 - 20:06

I believe you are mistaken, I have been advised that property can only go up, therefore a loss is not possible.

Property only goes up, so profits only.

PS: I think it goes without saying, but just to be clear, this is a joke
- cowboydev on 22/03/2023 - 21:52
  
  Hahaha I didn't think your other comment was a joke so I replied a bit too seriously, but gotcha now!
mungas on 22/03/2023 - 20:55

+2

Hi there, tax specialist here. Asking the question on a forum can be risky, as there are a huge amount of assumptions made that may lead you astray.

Nonetheless I'll try to stay tax law specific to give you an outline of how the rules work.

Before that I'd like to get to know a bit more about your scenario.

Re this extract:

2017 - Bought property but I was still living in parents property
2018-2021 - We moved into property A
2021-2022 - We moved into my wife's place, property B
2023 - Sold property A

Q1: Were these properties purchased individually?
Q2: When did you buy property A and B? Your timeline is misleading.
Q3: Did you move into property A, or 'move' into it in 2018? Same question for property B in 2021.
Q4: What were you doing with property A and B whilst you were not residing in them?
Q5: Does your spouse live permanently separate to you?
Q6: You made note that you used property A to generate income. What do you mean by that?
- Zeph101 on 22/03/2023 - 21:43
  
  @mungas first question is the most important. Is it entirely in her name or joint? If it's entirely in her name then i believe everything else is moot as can't nominate another PPOR if you don't have beneficial ownership.
- cowboydev on 22/03/2023 - 22:09
  
  Hi there! I figured out the hard way that it's very risky and painful. I was more expecting your type of response and useful conversations haha.
  
  I have already accepted that claiming the loss is not possible but in case you have a different view as a tax specialist here's some more info.
  
  @Zeph101 also asked my question too which I haven't got an answer yet, maybe it's all irrelevant after Q1.
  
  Q1: They were purchased individually, before marriage.
  Q2: I signed the contract for Property A in 2015, and settlement occurred in 2017. Property B was bought late 2017.
  Q3: I moved into property A in 2018 and moved into property B in 2021, but I was still going to property A from time to time.
  Q4: Property B was rented out from 2018-2021, until we moved in.
  Q5: We started living together since 2018.
  Q6: I think I confused everyone with this one, I have been working from home 40 hours a week since 2019 so I thought that was considered generating income, but apparently not?
  - Zeph101 on 22/03/2023 - 23:01
    
    +1
    
    Working from home would normally not be generating income if you are simply a wages earner.
    
    However you can actually claim deductions if you have a specific area made out for business use ie a study that is wholly fitted out for work use. But you would have to be claiming a proportion of your rates,mortgage interest and body Corp prior during the income years. You would then pay tax on that proportion of any gain you make.
    
    99% of accountants would lead you well away from this approach simply because it introduces capital gains into a main residence exemption. And in most cases if the property is held for long enough there would be a gain which most people don't want a bar of.
    
    Your just an exception to the norm in that it was a relatively short holding period and prices dropped.
  - mungas on 23/03/2023 - 10:26
    
    +3
    
    Ok, this is a shame, I had a fairly detailed response typed up but I clicked out of this without realising. I'll try to paraphrase.
    
    Assumption 1: Property A between 2017 and 2018 was not used to produce income.
    Assumption 2: Your WFH arrangement is under an agreement between employee/employer. If you were conducting business in the property, then the below is largely different.
    Assumption 3: Spouses have elected the same main residence.
    
    It is likely that you established a main residence pattern in 2018 when you moved into property A. Let's say you and your spouse elected that property A was your main residence at 2018. The rules for spouses is that they cannot have two main residences elected unless they live permanently separately and away from each other.
    
    In 2021 when you moved into property B, you should have considered at that time whether you would continue treating property A as your main residence, or whether property B was elected as your main residence. You could still treat property A as your main residence from 2021 onwards under the absence rule, which broadly allows you to continue treating it as your main residence provided no other property is chosen to be your main residence (and up to a 6 year period if the property is producing assessable income, ie rent).
    
    Under the circumstance in which you chose property A to be your main residence throughout property A's ownership:
    
    Property A: Will be main residence exempt throughout. The rental period between 2021 and 2023 will not taint the main residence CGT exemption.
    Property B: The property will not be able to access the main residence exemption for any period during property A's ownership period. At disposal, let's say you moved into property B, property B would then become your main residence (provided you reside in it).
    
    Under the circumstance in which you chose property B to be your main residence in 2021, and property A ceased main residency status in 2021:
    
    Property A: Property A can access a partial main residence CGT exemption. The capital loss will be calculated based on your percentage of non-main residence days over total ownership days. The period from 2021 to 2023 should be considered non main residence days.
    Property B: Property B can access a partial main residence CGT exemption. The calculation will be the same per above (ie capital gain/loss x percentage of non-main residence days), however the period of non main residence days would include the rental period from 2018 to 2021.
    
    Hope this helps and points you in the right direction!
    - cowboydev on 23/03/2023 - 13:25
      
      Oh wow! Thanks for typing the detailed response again after losing the original response, much appreciated!
      
      Firstly, I am not sure if other people here are accountants or tax specialist but pretty much everyone was calling this approach a tax fraud, which is sad because I am genuinely asking the question after reading all the ATO rules.
      
      @caramellokoala suggested PPOR/main residence exemption has nothing to do with capital loss which is when I accepted the fact that the loss can't be claimed.
      
      Now you have provided me some other different advice as a tax specialist I will definitely pass this onto some accountants in June and see what they recommend.
      
      Due to the many different advices here I am starting to have a feeling that different accountant may understand this rule differently too, which then again I don't know what to do when that happens.
      
      Last thing I want to see is a huge fine from the ATO, which is why I keep on insisting I am not asking for a loophole or fraud but no one believes.
      
      Anyway, thanks again mate and hope you have a wonderful day!
      - darkchoc on 24/03/2023 - 07:52
        
        @cowboydev: People have confused income tax with CGT.
        
        As long as you have documented evidence showing that for a period, the house was no longer your PPoR, your accountant should be able to help you realise a portion of the capital loss. It will not be the whole loss.
        
        Keep a very detailed timeline, evidence of bills etc.
        
        Discuss this post with your accountant.
kaleidoscope on 22/03/2023 - 22:20

+1

Best course of action is talk to tax accountant as they are lot more knowledgeable on these matters. From what I know any losses or gains from ppor is not tax deductible. But your situation may entitle for other applicable cases where only a t.a. would be able to provide.

good luck 💪
- cowboydev on 22/03/2023 - 22:40
  
  Sounds good! Cheers and have a wonderful day!
- Zeph101 on 22/03/2023 - 23:07
  
  +1
  
  I think tax deductible is the wrong term to use as it can't be deducted against his regular income.
  
  If he was able to claim the losses then they would be carried forward to offset future capital gains.
icejester on 23/03/2023 - 00:07

You just have to prove Property A was an investment for your determined period of time.
The best way to prove that is with rental income or proof you actually put it onto the rental market
WhyAmICommenting on 23/03/2023 - 04:18

-1

OP acting a bit entitled here. This is OzBargain, not OzTaxAdvice.
- WhyAmICommenting on 23/03/2023 - 13:31
  
  *negged by OP :P
ribze1 on 23/03/2023 - 05:00

+1

I literally had a conversation similar to this with my accountant last week, but did it before the event.

My unit is PPOR for entire time of ownership and would sell at a loss in today's market. We just bought a house so will rent out the unit for a year or so and see how everything goes. Since the unit will be an investment property for some time then i can claim the capital loss with all documented expenses since purchasing also able to be added to the cost base up until i start claiming investment expenses.
- cowboydev on 23/03/2023 - 13:32
  
  Oh yeah that's the option to go and I did think about it too, problem with my property was more the legal cases and defects which I eventually got exhausted and decided to let it go.
- fersea on 23/03/2023 - 20:26
  
  I think you will be able to claim a portion of the capital loss.
burningrage on 23/03/2023 - 08:07

+2

Adding most of the above, the day you moved out of the apartment AND make the apartment ready and available for lease, is the day you should value the apartment and that will become your new cost base against future capital gain.
fersea on 23/03/2023 - 20:32

+1

My advice to the OP is sit down with an accountant and go through it. These things are complicated and the tax law does allow you to make certain choices, often after the event, to get the lower tax option.

The question is also not a simple yes or no answer because your property may have been considered a PPOR at certain times and not at other times. You can have occasions were a gain or loss is apportioned and there are rules about how that can be done.

The problem with a lot of the advice from others here, apart from simply being wrong on occasions is it is based on what they think should be the case or what they believe is fair.

As a taxpayer you are not required to do what is fair, you are required to apply the law.
- cowboydev on 23/03/2023 - 22:07
  
  Thanks mate, will do!
  
  I wasn't really seeking a simple yes or no answer. I was just trying to find out and discuss the rules for claiming capital loss on partial PPOR and see if anything can apply to my situation.
  
  But little did I know about this community, it jumped into a simple Tax Fraud answer.
donotuse on 26/03/2023 - 22:09

Even if for the sake of argument, you can claim capital loss, you can only offset it against capital gains (such as from shares sold), not your ordinary income such as salary.

If you can claim another property for main residence exemption, you might be able to claim capital loss on this property to be carried over and applied against future capital gains (if none in current year).

Capital Loss on Owner Occupied Property

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