Hi all
Specific question with regards to CGT and the “6 year rule”
Hypothetical scenario:
– I buy my first property and move in for 12 months. It is my PPOR.
– I rent out the property for 0-6 years. I buy no other property. It is still my PPOR.
– I move back into the property for an “acceptable period of time”
– I rent out my property againQuestion: How long is an “acceptable period of time” so that my property remains my PPOR when I re-rent it out?
My current research seems to show it as a bit of a grey area, i’ve heard 6 months mentioned a few times. Does anyone have any experience with ATO regulation of this rule?
Thanks in advance
AdamAdam Sweeny
http://www.diypropertyinvestment.comHi Adam,
That is a great question !!Question: How long is an “acceptable period of time” so that my property remains my PPOR when I re-rent it out?
I believe the 6-year rule was brought in to assist where (for example) someone is transferred interstate or overseas, but plans to come back to their home down the track. Given that was the original tenet, an “in demand” person might arrive back at their PPOR, only to have the company they work for wanting them to move again within a matter of a few weeks/months.
The “reasonable man test” says this should be perfectly acceptable, so long as the intent remains to “come back home” in the future.
So, that I believe is the background to the 6 year rule.
Could it be that “just a few weeks/months back home” is acceptable for one who is returning from interstate – but might be unacceptable for one who is simply looking to legally minimise their taxes due. Perhaps a private ruling is the only way to really know??
Just a thought – and, no, I am not an accredited adviser,
Benny
Benny – you have no idea!
There is no need to move back in or even to have an intention to move back in. The relevant piece of law mentions none of this, neither does it state a minimum time period. The property only has to be the ‘main residence’.
see s118-145 ITAA97
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Benny/Terry
I have located the relevant section Terry mentioned s118-145 ITAA97
(2) If you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.
So to rephrase my question: What needs to be done after 6 years of renting it out to qualify it as my main residence?
The following information is provided on the ATO website:
The following factors may be relevant in working out whether a dwelling is your main residence:
– The length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence
– Whether your family lives there
– Whether you have moved your personal belongings into the home
– The address to which your mail is delivered
– Your address on the electoral roll
– The connection of services (for example, phone, gas or electricity)
– Your intention in occupying the dwelling.A mere intention to construct or occupy a dwelling as your main residence – without actually doing so – is not sufficient to obtain the exemption.
It’s still unclear to me as to what needs to be done. So getting back to my original post, does anyone have any experience with ATO regulation in this area?
Regards
AdamAdam Sweeny
http://www.diypropertyinvestment.comHi Terry,
There is no need to move back in or even to have an intention to move back in.
Hmmmm, I’m not sure which part of my thoughts were suspect, Terry, but it was a bit of a muse re how the law might have come about. So, yeah, I could well be quite wrong – point taken.
Anyway, since your answer didn’t seem to answer Adam’s original question, I went looking and found this (for you, Adam) :-
There are several examples, and even some calculating how CGT is calculated if rented for more than 6 years. What it does seem to say (and I could be still reading this incorrectly) is that a PPOR can be rented for up to 6 years and still claim exemption.
BUT I still don’t see anything on that site that talks to “restarting the clock” by moving back into it (as per Adam’s original question). And, if doing so, DOES it give you a further 6 years exemption if rented? Terry, can you help with that one for Adam?
For sure, I can’t…. ;)
Benny
Haha Benny, think we both posted at the same time there!
I have read that page before, and yeah it doesn’t specifically address the restarting of the time. I think my second post above is about as much info on the topic as is available on the internet, which is why I’m really trying to find if anyone has some real life experience with ATO regulation. Like you said, maybe a private ruling is the only real way to know.
The reason I want to know is two-fold:
1. I want to restart the 6 year timer on my investment property in a few years time ;)
2. I recently wrote an article on 11 strategies to minimise your capital gains tax and really want to clarify this area for everyoneThanks for your help so far guys
Cheers
AdamAdam Sweeny
http://www.diypropertyinvestment.comIt is clear from the Act, you must move back into the property as your main residence. What maybe not clear is what this is. Whether it is the main residence or not would be a question of fact – do you have another reisdence? Are you just camping out in house A while living in house B sort of thing. If you move yourself back in, including all your personal items, change addresses, connect electricty (and actually use it!) then it will probably be your main residence.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
There is an example in the law see
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.htmlExample: You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house.
You have not treated any other dwelling as your main residence during your absences.
You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years.
You can make this choice when preparing your income tax return for the income year in which you sold the house.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Adam,
I skimmed your article, don’t forget that any costs incurred while living in the property can be used to reduce the CGT too and using a discretionary trust to hold it could result in tax savings by having the capital gain distirbuted to the lowest tax payer in the family group – maybe even to someone with a capital loss which can offset the gain in full or part.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry
Yep that’s along the lines of what I was thinking; move in for 3-6 months, electoral roll, phone, internet, electricity, gas, bank statements, mail etc etc.
Thanks for the article feedback as well – much appreciated!
Adam
Adam Sweeny
http://www.diypropertyinvestment.com
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