Hi,
I have searched everywhere trying to find a specific example for my circumstances on the ATO web site and other Australian sites.
I am in the process of buying my first house in Sydney, however due to timing we will be heading overseas for work before being able to move in to it.
As such, we will be renting the property out (in fact the property of interest has a current 12 month fixed term lease with 6 months remaining as it stands).
My understanding is that since I will not move in a soon as “practicable” I’m unable to claim the full CGT exemption.My question is this, if I rent it out for 1 year, then I move into it as my PPOR, then I need to live overseas/interstate again in the future, am I able to use the 6 year rule from this point on?
Scenario example: (Dates simplified for calculations)
31st October 2014 – exchange contracts
12th December 2014 – Settlement occurs, current tenants remain. Property rented out.
12th December 2015 – Tenants move out, I Move into property as PPOR.
12th December 2016 – I leave to live overseas for work, rent property out
12th December 2018 – I return to live in as PPOR
12th December 2024 – Sell property.
* Note no other property purchased or claimed as PPOR in this time, renting overseas.Total time owned: 10 years
Total time lived in: 7
Total time rented: 3 yearsI undertstand since it was not my PPOR/main residence from settlement (or moving in as practicably possible) that I will have to pay CGT on the proportion of time it was rented out, what is not clear is if I am eligible for the 6 year rule *after* I move into it as my PPOR.
In this scenario, will the CGT be charged on 3/10 years or 1/10 years (since it was PPOR for a year in 2015 before being rented again)?
Also if anyone knows in this first year, or any years – will I be able to claim interest as a deduction/expense whilst it’s rented out?
Thanks,
AdamNo!!
You can only claim the 6yr rule if you lived in it from the start. Sorry you can never use the 6yr rule for that house.If you own it for 10 years and live in it for 7years you’ll pay CGT on 30% (but you get the 50% rebate so 15%.)
You can claim all costs associated with the property while it’s rented eg rates, insurance, maintenance)
Yes!!
Since you will not be living in it immediately it will always be subject to CGT on a time basis. But once you move in and out the 6 year rule can then apply from that point on.If you rent it for the first year then claim it as the main residence until 2024 then approx 1/10th will be subject to CGT. All expenses incurred, and not otherwise claimed, can be used to reduce CGT too. Including expenses incurred while it was the main residence/
While rented out interest can be claimed.
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
Correct me if I’m wrong but Terry haven’t you in the past said you have to move in straight away in order to be able to use the 6 year rule?
Edit. Searched and found you can’t get the FULL exemption as you stated but can still use the rule.
Yes, to be entitled to the full exemption.
One you have established it as the main residence by moving in, you can then be abscent.
The relevant sections are s118-145 ITAA97 and s118-192 and surrounding.In this person’s case the first period was rented out, so the property will always partially be subject to CGT.
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
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