Hi all
Long time reader, first time poster!!
I have a quick question on the application of the 6 year principal place of residence rule in order to attract CGT exemption.
I bought a property about 5 years ago in NSW (Property A). I lived in Property A for about 12 months in order to get the first home owner stamp duty concessions and grant. I then moved out of Property A and rented Property A out as an investment property. I moved into another property as a tenant and paid rent (ie I did not own it). I bought another property called Property B, which I am also renting out. I plan to move into Property B at the end of the year.
My questions are as follows:
1. If I were to sell Property A today, would any capital gains be tax free?
2. Do I need to sell Property A before I move into Property B for the gains to be tax free?
3. If I did sell Property A, how do I go about claiming it is CGT free? Do I just not show it on my tax return?I understand there are some specific tax rules in this area allowing capital gains to be tax free for some time after a property was your principal place of residence, even if it was rented out afterwards, and was hoping to get some views on this.
Thanks so much in advance!
Cheers
Hi there,
Welcome to the forum.
To answer your questions;
1) From the information you have provided, yes, the sale of property A would be CGT free
2) Not necessarily, you could still elect to call Property A your principal place of residence, even if you have moved into Property B. It just means Property B won't become your main residence for CGT purposes until Property A is sold.
Property A would need to be sold before it has been rented for 6 years, to be totally CGT free.3) The easiest way is to not include the sale in your tax return.
What is the 6 year CGT exempt rule??
I thought you had to live in it for 12months before
you void CGT on sale!
Or is that a W.A thing?Congulations on joining the forum,
I am the same! long time reader, post for the first time yesterday.
Justifying using the "Absence Rule"
The 'six-year absence rule' is simply a choice.You don't have to have a good reason for your absence, such as being transferred in your job. Section 118-145 simply says in subsection (1) "If a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence'. So it's clealy your choice.
Subsection (2) limits the time period to individual periods of a maximum of six years if the property is earning income and subsection (3) points out that if you aren't earning income the exemption can cover the property indfinitely.The only condition is in subsection (4), stating thst you can't treat any other dwelling as your main residence during that time except for the six- month overlap rule'
This information is from an article that i have saved on my computer.( 1997 Income tax Assessment Act.)Hope it helps….
Cheers..Packer wrote:What is the 6 year CGT exempt rule??
I thought you had to live in it for 12months before
you void CGT on sale!
Or is that a W.A thing?You do have to have lived in the property, but there is no set time.
The '12 months' you are thinking of probably relates to the First Home Owners Grant.
Dan42 wrote:Hi there,Welcome to the forum.
To answer your questions;
1) From the information you have provided, yes, the sale of property A would be CGT free
2) Not necessarily, you could still elect to call Property A your principal place of residence, even if you have moved into Property B. It just means Property B won't become your main residence for CGT purposes until Property A is sold.
Property A would need to be sold before it has been rented for 6 years, to be totally CGT free.3) The easiest way is to not include the sale in your tax return.
Thanks Dan42. In relation to your response on point 3, could you elaborate a little further on "easiest way". Does this mean there are a variety of methods? I just want to make sure I take the least tax risk on this front.
Thanks again everyone!
Dan42 wrote:Packer wrote:What is the 6 year CGT exempt rule??
I thought you had to live in it for 12months before
you void CGT on sale!
Or is that a W.A thing?You do have to have lived in the property, but there is no set time.
The '12 months' you are thinking of probably relates to the First Home Owners Grant.
Ah yep, got ya
coolcup69 wrote:Dan42 wrote:3) The easiest way is to not include the sale in your tax return.Thanks Dan42. In relation to your response on point 3, could you elaborate a little further on "easiest way". Does this mean there are a variety of methods? I just want to make sure I take the least tax risk on this front.
Thanks again everyone!
Sorry, I wasn't very clear. The sale of your PPOR would not be included in your tax return, as it is an exempt capital gain.
But keep all purchase and sale records to prove CGT exemption.
An audit by ATO may show rental income earned by the property but no CGT exemption. This may lead to ATO wanting to know why there is no CG declared.
As with all matters tax – speak to an accountant before doing anything.
I build my 1st home 2012 as principal place of residence. After one year I am thinking to change from principal place of residence to Investment property due to going overseas. I need advice. 1st I need to know how can I change from principal place of residence to Investment property? what are the benefits? Due to overseas movement Do I need to change from principal place of residence to Investment property? How much tax I need to pay? Say example, currently My weekly mortgage $550 but rent income will come weekly $450 including including real estate fee 10%.
I have no knowledge about the property investment. Please advice me which is the best one?
You don't need to change anything with regard to paperwork, or pay any fees (unless you pay land tax).
You just rent it out. This will show on your tax return. If you sell within 6 yrs it is CGT free. Or you can move back in then out again and get another 6 years.
This is only possible if you lived in the property first. If you rented it thenmade it your PPOR then made it an IP again you cannot use the 6 year rule.
You can work out if it's tax effective by adding the incosts and outcosts.
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