{"id":10709,"date":"2017-03-16T07:00:13","date_gmt":"2017-03-15T20:00:13","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=10709"},"modified":"2017-03-16T07:00:13","modified_gmt":"2017-03-15T20:00:13","slug":"when-a-flip-becomes-a-flop-mark-chapman","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/when-a-flip-becomes-a-flop-mark-chapman\/","title":{"rendered":"When a 'flip' becomes a 'flop' – Mark Chapman"},"content":{"rendered":"

Programs such as\u00a0The Block\u00a0might make house flipping seem straightforward and lucrative, but there are also a\u00a0number of tax issues\u00a0that house flippers should be made aware of.\u00a0 Mark Chapman<\/strong> from H&R Block Tax Accountants looks at where house flippers stand from a tax perspective.
\nTranscripts:<\/strong>
\nKevin:\u00a0 <\/b>Recent figures released by the Australian Bureau of Statistics suggest that a record-breaking $18 billion was spent on renovations in the quarter up to September last year. Whereas the bulk of this spend would previously have been attributed to private renovation, this notably high figure is undoubtedly inflated by house flipping, which is a process whereby individuals buy a property, renovate it, and then sell it on for sometimes a tidy profit \u2013 not always, but sometimes.
\nPrograms such as The Block<\/i>, which we\u2019ve talked about before, might make house flipping seem pretty straightforward and lucrative, but there are also a number of tax issues that house-flippers should be aware of. So, let\u2019s take a brief look at where house flippers stand from a tax perspective. Joining me is Mark Chapman, who is the tax communications director for H&R Block tax accountants.
\nMark, thank you very much for your time.
\nMark:\u00a0 <\/b>No problem.
\nKevin:\u00a0 <\/b>House flipping, as I described there, is the process of turning a property over fairly quickly, so would I be correct in saying that capital gains tax is going to be the first obstacle you might come up against?
\nMark:\u00a0 <\/b>Certainly, tax in some form is going to be an obstacle. Depending on how frequently you flip \u2013 in terms of whether it\u2019s a one-off thing or something that you\u2019re almost doing as a way of life, as a business \u2013 you\u2019re either going to be paying capital gains tax or you\u2019re going to be paying income tax.
\nKevin:\u00a0 <\/b>What are some of the other problems you see flippers come up against? What should they be aware of?
\nMark:\u00a0 <\/b>I guess the first issue is that probably the best way to do this actually is to move into the property while you\u2019re flipping. If you don\u2019t actually have anywhere else to live and you\u2019re basically in a process of moving from one house to another, you buy the house, you move in, you renovate, and then you sell, and then you repeat the process, you\u2019re actually probably in a pretty good position from a tax perspective because you can potentially take advantage of what\u2019s called the main residence exemption for capital gains tax.
\nThe house that you\u2019re renovating becomes your main residence, which means that you can then sell it capital gains tax-free at the end. You obviously need to actually physically live in the house; you can\u2019t have a main residence anywhere else. But if you\u2019re doing it that way, that\u2019s actually really tax-effective.
\nKevin:\u00a0 <\/b>It effectively becomes your principal place of residence. Is that right?
\nMark:\u00a0 <\/b>Yes, that\u2019s right. You basically live in the house whilst you\u2019re renovating it, then you sell, and then you repeat the process.
\nKevin:\u00a0 <\/b>It might make sometimes for a very unhappy partner, if you\u2019re moving your partner every six months or so.
\nMark:\u00a0 <\/b>Yes, that\u2019s right, especially if you have a young family, although some people do that. You can see that kind of thing on TV all the time with these home makeover shows. And from a tax perspective, that\u2019s the best way of doing it. Not necessarily the best way from a settled lifestyle perspective, though.
\nKevin:\u00a0 <\/b>Mark, is there a timeframe from when you first purchase to when you move in and how long you need to live in it before you can actually flip it?
\nMark:\u00a0 <\/b>No, it comes down to the fact of whether it is your main residence or not, so whether you actually live there, whether it\u2019s the place you\u2019re actually living, whether it\u2019s the place where you\u2019re registered on the electoral register, getting your bills, etc.
\nIf it\u2019s actually your main residence, then there\u2019s no minimum period. The longer you stay there, obviously the better from a tax perspective, but if it is physically your house, then you are covered by that exemption.
\nKevin:\u00a0 <\/b>How many times do you see people go through the process of doing some flipping? Because as you rightly say, on programs like The Block<\/i>, it looks so easy, and they potentially make hundreds of thousands of dollars. They come to you after the event and say, \u201cWell, that wasn\u2019t really all that worthwhile,\u201d because they didn\u2019t see this coming. How often does that happen?
\nMark:\u00a0 <\/b>It is one of those things that people go into without considering the tax aspects. I think particularly with the advent of all these home makeover shows like The Block<\/i>, it\u2019s something that\u2019s become a bit fashionable, to get into property. People think that there\u2019s easy money to be made there because they see rising house prices in Sydney, Melbourne, Brisbane, all the capital cities \u2013 well, most of the capital cities.
\nAnd it may well be that there is a good profit to be made there, but you have to be aware of two things. First of all, the tax on the profit that you make in terms of the renovation and the flip, but then there\u2019s the other cost; every time you buy a house, you have to pay stamp duty, and that\u2019s something that people don\u2019t take into account.
\nYou may be paying $30,000, $40,000, $50,000 in your stamp duty just to get the process started, so you have to make a profit at the end of at least that much just to cover your stamp duty, never mind all the other costs and so on that you\u2019re spending.
\nKevin:\u00a0 <\/b>It says a lot for making sure you\u2019ve got a good tax accountant on board before you even start the process, doesn\u2019t it?
\nMark:\u00a0 <\/b>Yes. I think the main thing is before you get into this \u2013 and this is the same with any kind of business transaction \u2013 it pays to sit down, talk to somebody who understands tax, and just work out what the tax implications might be, what additional costs that might impose on you.
\nAnd if you factor in those costs and it still looks like you\u2019re going to make a decent return on the investment, then go for it. But if you add in the tax, which you may not have previously considered, and it doesn\u2019t look like such a good investment, then it\u2019s better to find that out before you start rather than halfway through \u2013 or worse still, at the end.
\nKevin:\u00a0 <\/b>Even a bit of due diligence along the way, too, because stamp duty does vary in different states around Australia, and there\u2019s actually quite a big variation, isn\u2019t there?
\nMark:\u00a0 <\/b>Yes, exactly right. I don\u2019t claim to be a stamp duty expert, but you\u2019re absolutely right; completely different in every state. So if you do get into the process of flipping houses in other states, then you\u2019re definitely leaving yourself exposed because you can\u2019t assume that stamp duty in your place is going to be the same in another state.
\nKevin:\u00a0 <\/b>Mark, great talking to you. Thank you very much. Mark Chapman is the tax communications director at H&R Block tax accountants, and you can reach him at their website.
\nMark, thanks for your time.
\nMark:\u00a0 <\/b>No problem. Thanks very much.
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

Programs such as\u00a0The Block\u00a0might make house flipping seem straightforward and lucrative, but there are also a\u00a0number of tax issues\u00a0that house flippers should be made aware of.\u00a0 Mark Chapman from H&R Block Tax Accountants looks at where house flippers stand from a tax perspective. Transcripts: Kevin:\u00a0…<\/p>\n","protected":false},"author":176692471,"featured_media":10710,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[33,10,11,13,36,21,25],"tags":[101],"class_list":["post-10709","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-case-studies-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-renovation-topic","category-sponsored-channels","tag-podcast"],"yoast_head":"\nWhen a 'flip' becomes a 'flop' - Mark Chapman - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/when-a-flip-becomes-a-flop-mark-chapman\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"When a 'flip' becomes a 'flop' - Mark Chapman - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"Programs such as\u00a0The Block\u00a0might make house flipping seem straightforward and lucrative, but there are also a\u00a0number of tax issues\u00a0that house flippers should be made aware of.\u00a0 Mark Chapman from H&R Block Tax Accountants looks at where house flippers stand from a tax perspective. 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