Does the six year CGT exemption rule apply?

Hello,

Please entertain the following scenario.

You buy a house and rent it out.
Three years later, you move in for one year. During that year it's your PPOR. Then you move out and rent another property.

Of course, capital gains will be taxed for those first three years of ownership where it was rented. But, does the six year rule apply after that? For the year you leaved in it + six years after that (assuming you don't have another PPOR that you own) are you exempt from capital gains tax?

Cheers,
Lara

 

No you are not exempt from cgt

You are subject to cgt on 3 years divided by ownership period. Assuming you use the main residence absence provision.

Its that percentage over the entire capital gain not just the gain in the first three years.

 

You can't be absent until you are first present.

 

You may have guessed, I'm not all there.

 

Hi Mike, thanks for your quick reply.
I'm not quite sure I understand yet. Could I please clarify.
To use the absence from main residence exemption, as you mentioned, do you have to move into the property immediately upon purchase? Or can there be a delay in moving in? Say for example:
Property purchased.
Rented out for 2 years. (Years 1 and 2)
Lived in as PPOR for one year. (Year 3)
Moved out (and have no other PPOR).

CGT applies for years 1 and 2.
Does CGT apply for years 3 + 6 more years?

Sorry for any confusion. I'm new to this tax stuff and it's doing my head in :|

Cheers,
Lara

 

You can use the 6 year rule after you have moved in, but you could not count the property as the main residence before you lived in it.

 

Perfect, now I get it. Thanks!

 

The main residence rule requires you move in as soon as practicable either :
1. After settlement for an established property or
2. After construction completion for a new build
Renting the property (even if its just a few weeks before the former owners tenants move out) fails the test.

If you dont then pro-rata exemption applies.based on no of days taxable v's total ownership period.

Your main residence

 

I have a tagged on question

so how long do you have to live in the main residence after settlement before you move out does the 6 year rules apply for CGT exemptions?

Some people say 1 year some people say 6 months but I cannot find it on ATO website?

thanks

 

Can be 1 week. But you would have to have solid reasons why you had to move soo quickly.

 

I have seen two real short duration taxpayers who were both legit. One a soldier who moved in same day as he was given orders to move. Another moved in wife wife and kids and learned or a offshore posting the next week.

In each case its essential you keep very sound records and evidence that shows you did actually make the pace your primary residence eg removal costs, connections for utilities etc. It too easy for these to be challenged later.

If the premises were newly renovated or built then there is also a three month minimum requirement to consider.