Been reading all the posts on the 6 year rule for a PPoE to remain CGT free but was still hoping to seek some clarificaiton/ advice.
I brought a property in 2001 and lived in it unitl 2006 as my PPoR. Since January 2006 it has been rented and an IP.
As this property has higher capital gains than my other property, I am planning on keeping it as my PPoE and making use of the 6 years CGT fee area (so would remain CGT free until January 2012). (I realise I will have to pay CGT on my other property from day 1).My question is what happens if I do not sell it before 6 years?
Do I have to sell it within 6 years for it to remain CGT free? If I sold it after say 7 years could I claim CGT free for 6 years and then pay CGT for the extra year or would it default back to the 2006 value and I would have to pay CGT tax on it for the entire period (7 years) since I first moved out?
If I wanted to keep it for longer than 6 years would it then be worth moving back in for a period of time and re-setting the 6 years?
Thanks
Katie.pkrae wrote:If I wanted to keep it for longer than 6 years would it then be worth moving back in for a period of time and re-setting the 6 years?
My interpretation from what I read on the ATO website is that unless you do that you'd get hit with CGT for the full period rented out . eg. the full 7 years.
But just to be sure, get professional advice from your accountant or the tax office.cheers
I think Hard is correct, but I am not an accountant so best to check. A way to avoid this is to move in and then out again and the 6 years will start again from the date you move out.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for such a quick reply.
It is how I interpreted the ATO web site but it seemed a little odd.
From what I gather I could move back in for a month, get the electricity hooked up, phone, change my car rego and licence and then move out again. Is this correct, it's not the time that I move back in for that counts??I will eventually need to sit down with an accountant but wanted to get a fair idea of where I sat first as you don't usually get the answer's you're looking for unless you really probe for it.
That seemed so strange that I just had to have a look myself.
The link below is to the ATO site.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm
If you look at the second example where the house was rented out for more than 6 years then CGT is payable on only the time that is over 6 years.
Total time of house ownership 5356 days
total no. days rented 2556
total no. days rented in 1st 6 years 2191Extra income producing days 365 days
Portion of taxable CG = Total CG x 365/5356
Not the easiest example to follow. Not sure why they made it so complicated.
However, if my understanding of this example is correct then you only pay CGT on the days it was rented out above the 6 years but on the total CG over the whole period of ownership. That last part is not great.
It's definately worth coming back to live, even for a short time, before the 6 years expires though I suspect if you make it obvious that the reason you came back was to restart the 6 year rule they will disallow it.
Also if you rent it out for just less than 6 years and then leave it vacant till you sell that also avoids incurring CGT.
Naturally a good accountant is the best source of advice.Can anyone supply me with a link to the information you found as it seems to contradict the info I found. ?
Cheers
Elka
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