6 year rule

Discussion in 'Accounting & Tax' started by INvestorperth, 16th Apr, 2022.

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  1. INvestorperth

    INvestorperth Active Member

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    Hi,

    I purchased a place in July 2015. Initially moved in to renovate it for 6 months. It’s been rented out ever since. About to go on the market and will settle June/July 2022.

    How does the 6 year CGT exemption rule work? It will be 6.5 years since I moved out come settlement.
    Thanks
     
  2. Trainee

    Trainee Well-Known Member

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    Where have you been living in the last 6.5 years? Is it something you own?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    See my tax tip on this
     
  4. INvestorperth

    INvestorperth Active Member

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    Nah I’ve just been renting the whole time and purchasing investment properties.
     
  5. Mike A

    Mike A Well-Known Member

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    did you move into the property and make it your main residence ?

    you say you moved in for 6 months to renovate.
    seen a situation where ato argued it wasnt their main residence and so 6 year rule didnt apply. the problem with that one. the person had a lease elsewhere at the same time.
     
    Last edited: 16th Apr, 2022
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  6. INvestorperth

    INvestorperth Active Member

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    I l
    i lived there for 6 months during the renovation. Can’t even remember if I had a rental elsewhere
     
  7. Mike A

    Mike A Well-Known Member

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    ok that could be very important.
     
  8. wylie

    wylie Moderator Staff Member

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    I thought if you went even one day over six years this six year rule couldn't be used. Is that right @Terry_w?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    nope
     
  10. wylie

    wylie Moderator Staff Member

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    Therein lies the danger of taking advice on the internet without checking with the right people.

    I’ve never used the six year rule so have never had to research it beyond what I read on this forum.
     
  11. Mike A

    Mike A Well-Known Member

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    i talked about that in a recent podcast. its an urban myth

    6 Year Rule. How Might it Help me Pay no Capital Gains Tax ?
     
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  12. INvestorperth

    INvestorperth Active Member

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    I don’t get it? What if the vacancy rate was really low where you were renting and you purchased a PPOR but decided to keep the rental in case the new PPOR wasn’t for you?
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    you would have to argue your case to the ato. What evidence do you have that you really moved in to the new main residence. Some changes all addresses and leave a light on and a tap going but don’t actually move
     
  14. INvestorperth

    INvestorperth Active Member

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    I’d have to have a think about it. Drivers license was changed to the Qld address. Not sure if I still have it but. What are the chances of being asked for evidence anyway??
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    High chance I think as sale without cgt will trigger the ato
     
  16. Baker

    Baker Well-Known Member

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    I've got a suggestion: The 6 year 6 year rule.

    No new threads on the 6-year rule for the next 6 years, you must use (READ) the ones already populated with wonderful information.
     
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  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Proof of occupancy is more important that extrinsic things like a license. Did you move all your possessions in ? I have seen examples of people who do this and they work in Sydney and try to argue their main residence was on the gold coast where they renovated. That not going to fly. To lodge a return on that basis would be treated as evasion / avoidance without time limits to amend.

    The clue to the tax exemption is in its name ...the MAIN RESIDENCE exemption. There are two important elements.

    1. You must have resided there and
    2. It must be the main place you reside if there could be two. eg If you also slept, ate and left your possessions at Mum & dads. Or a GF's etc

    What can be fatal is also an uninhabitable place being extensively renovated which may be far more difficult that merely painting and the like
     
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  18. Travelbug

    Travelbug Well-Known Member

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    When I sold my last PPOR my accountant said to have paperwork (- anything to prove I lived there-licence, toll charges, elect) ready in case they asked.
     
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  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The ATO generally will consider living costs evidence as a reliable indicator. You may be surprised how many think changing their license and electoral roll "proves" they live somewhere. ATO will look at electricity, water, foxtel etc. Even things like car insurance. These days all things leave electronic finger prints.

    Had a case where the person sought help after the event. He said he lived out West of Melbourne in a house he bought which he renovated and later sold aftre a year. Used to live far east of Melbourne at parents house. Worked near city and drove as it was away from main transport links. He hadnt changed his address anywhere. After he failed to include a CGT calc or exemption in his return ATO asked for more info and he was struggling to convince them. Called me in to assist. ATO asked for evidence of tolls accounts showing his car travels for a period of 2 months and any other occupancy costs for utilities etc. He was pinging tolls along the SE Freeway each day for his work commute. Almost no power consumption. Water was barely used. Just travel weekends to . from house. He had post acquiistion renovation costs on QS report. for new bathroom, kitchen and other works so it was fair amount of work. We had a discussion and he admitted he never established the home as a main residence. He was living at mum and dads and working weekends.. Ironically he hadnt considered holding, selling and reno costs and the taxable gain was very minor.
     
  20. James Mac

    James Mac Member

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    Hi Terry, had a listen to your podcast. Great work.
    Just a quick question, if you go over the 6 year rule by 1 year do you lose the entire 6 years or is CGT just calculated on the 1 year you went over?
    My parents have had a PPR for 25 years and they have now rented out for 7 years and wish to sell.

    Thanks