6 Year Capital Gains Tax Rule Question

Hi Property Lovers,

I have a question about the 6 year CGT rule.

So I bought my first property as my main residence in 2020 and I lived in it for 1 year. After that 1 year I have moved out of that property into my parents house and have rented out that property as my main residence. That property is still my main residence. Whenever I use my residential address anywhere I always use that property's address, my electoral roll is also registered on that property address as well as my license, bank etc I did this so I have proof for the future that it's always been my main residence. So if I decide to sell this property before the 6 year period will I pay $0 in capital gains tax? Will I still pay $0 in CGT even when I used my main residence to generate rental income?

Also if I decide to move back into that property in 2 years will the 6 year period reset?

The suburb which my property is in is BOOMING and I reckon it's gonna continue to boom in the future because of the scarcity and high demand that's why I don't wanna miss out on future capital growth.

Thanks in advance!

 

the property isnt your main residence it is a rental property.

but you could elect for it to continue to be your main residence. doesnt matter that it is earning rental income.

 

How do I elect it to be my main residence?

I thought I have already elected it as my main residence because all my residential addresses are still pointing to that address

 

PLEASE use the search function, all this is covered.

Tax Tip 23: The 6 year Absent from Main Residence Rule

Probably

If you apply the main residence rule to that property.

Yes.

 

Thanks mate, you've cleared it up and I also found my answer by searching online.

Just putting this here for other users who might need this advice:

Home used to produce income – six-year absence If the home is used for income-producing purposes, such as being rented during their absence, the maximum period that the dwelling can continue to be treated as the client’s main residence while being used to produce income is six years.

If the client is absent and rents the dwelling for more than six years, then a partial main residence exemption applies and the dwelling it not considered their main residence for the period of time when it was used to produce income that exceeds six years.

The six-year period of producing income does not have to be continuous. During one period of absence where a dwelling was used to produce income a number of times but was also vacant and not available for rent at other times, the six-year period is calculated by using an aggregate of the periods where it produced income.

If the client genuinely decides to move back in and it becomes their main residence again, they will be eligible for another six-year period where it can be used for income-producing purposes again during the next period of absence. If the client chooses to rent the dwelling for up to another six years, they may still be eligible for the full main residence CGT exemption when the dwelling is sold.

 

The property was a main residence. This is based on fact not subjective matters like electoral rolls etc. It is now a investment property. The main residence absence rule would allow you to elect to continue your main residence exemption for up to 6 years in cases where the property produces income. Note hwever the costbase rest on the date the property was first used to produce income and is no longer based on what you paid. If you move in during that 6 year period and recommence a MAIN residence and later depart the 6 years is reset and starts again.

If you acquire another property which could also be a main residence then you may be able to elect and choose which will be taxable for each day of the ownership periods. No overlap is generally available. A election is the way you prepare and declare the CGT outcomes in a tax return.

 

Question for those legally allowed to provide advice.

The op has spent a lot of effort to 'prove' it was his main residence after he moved out. Is that in fact required? doesn't the 6 year rule assume the owner is absent from the former ppor, and can apply (in fact was probably intended to apply) when the owner has to move away including overseas?

But the op has not considered a common situation: what happens if he gets another property and lives in that as ppor? Potentially, would having say his electoral details attached to his former ppor (besides whether that's legal or not) mean he loses the ability to choose which property the ppor exemption applies to? Because he can't 'prove' he lives in the new ppor?

 

It can't be the main residence if you are not residing there. But s 118-145 ITAA97 allows you to treat it as your main residence while being absent, under certain circumstances, for the purposes of CGT

 

In this scenario, all the steps they've taken to 'prove it's still their main residence' even after moving out are unnecessary for CGT.

s118-145 roughly states that a dwelling that was your MR can continue to be treated as such if rented for up to 6 years

Then they would need to prove the new property is their MR if they want to now treat it as such, i.e. physically occupy/live there, move in any possessions, pay utilities there, etc.

Just because their electoral address is still the former house does not mean the new one cannot be classified as their MR. Electoral details are just one of the many factors the ATO would use to help determine if a property is a MR

 

And even false.

 

Is the op's tenant going to receive the op's credit cards, speeding fines, etc?
What do the electoral laws say about voting in local elections when you don't reside there?

 

I thought it odd when they said 'everything' is still sent there. I would assume (or hope) that the tenants are friends or family otherwise why would you send private info like bank statements and ID to a random's home

Wish I was the tenant though, wouldn't mind seeing what's in Louis Vuitton's bank account

 

My postal address is different haha so they're not gonna receive any mail

 

I don't intend to buy another property unless I sell this one first tax free.

I intend to move into this property again before the 6 year period expires so the 6 year period resets again

 

Nothing is sent there, I only use that address as my residential not my postal address so they're not gonna receive any mails haha

 

There is no need to pretend you are still living there or to use that address

 

So I can change my residential address everywhere to my parents address where I'm currently living without any issues?

 

It is irrelevant where your address is for tax reasons for this situation.

 

Alright, thanks for the info Terry

 

Good question and one I try to teach new practitioners. Nearly all taxpayers read the ATO website and get fixated on things like a drivers license, electoral roll etc. While these may show a address it doesnt mean you LIVED there. It may even be a PITA to keep changing the address. I commonly see people who want to "claim" a main residence think that if they live at mums and never live in the property thats OK. Its not enough. Its deceitful. A main residence exemption requires two things...1. That you did reside there and 2. It was your "main"residence. And there is not ordinarily a statutory time basis (except a newly constructed on land or renovated property) to this test. One night would need some valid reason as a property cant commence to be a main residence if you move in and intend to move out. I had a client who was a soldier. He bought his first home and moved in and went to work and was given orders to move to a new city. He literally had a few days in his new home. We kept copies of those orders as a record on his tax file. And his truck hire receipt when he moved in. etc. No problem. But I can compare this to "Fred"who buys a property. He learns he can turn off CGT for 6 years if he moves in and straight out. He sleeps on night or two without moving all his possessions into the house before listing with an agent. Moves back to mums. Easts meals at mums. He never really commenced to reside and is creating a illusion.

Proof of you living there is more likley to be checked by the ATO based on occupancy usage evidence. Eg consumption and spending on water, electricity, foxtel etc.. The ato can seek that sort of evidence to sort the truth out. They will also seek to determine if others lived there too and will also focus on where you moved out to...eg a partner who also owns a house ? Mums and Dads ? Or the rental you kept that you never actually moved out of !! . And will ask about the property use eg you renteed the second bedroom. This could impact a partial exemption at the same time as confirming the occupancy. The ATO staff are well trained in open questions. They ask a broad question and stop speaking. People love to overtalk and explain themselves and often trip up and say something which could need clarity. The ATO will want you to say things so they know what proof you can then provide. If you tell them you lived there for 8 months then they may seek that proof. If they see it was two months they will challenge the difference as indication of false representation. And then keep digging. But most taxpayers have nothing to hide and retaining some evidence of actually living somewhere is wise.