Question Regarding 4 Year Construction Rule

I have settled on a property that I am intending on doing a knockdown rebuild on in Melbourne. The property settled last week and I am wanting to know if I am eligible for a complete CGT exemption when selling provided I live in the property for the entire time after the new dwelling is built.

scenario:
- I do not own any other property

- The property is currently vacant and I am looking for tenants to rent to for one year while I get building plans and permits

- I have not lived in this property or established it as my PPOR, but will be when the new dwelling is built

- The property is tenanted for one year while I am waiting on plans and permits, and the build takes 1 year to complete, for a total time period of 2 years since acquisition.

using the scenario above, would I need to pay CGT for the time the property was rented out? If so, could I just leave the current dwelling vacant instead of renting it out up until demolition to receive a full CGT exemption using the 4 year (118.150) construction rule provided I live in the new house for the whole time once the new dwelling is built? Hypothetically, lets say I live in the new dwelling for 5 years before selling.

 

Pretty sure you still have to make it your PPOR first. Then you can rent it our and use 6 rule. I dont think you just rent it out straight away and then say it was your PPOR.

 

its rent out so you can't use the 4 year rule for this period. you also appear to be doing this with the intention of selling so possibly on revenue account. if you live there for 5 years more likely it is on capital account that.

If yo demolish you could claim the land as your main residence for up to 4 years prior to moving in, but not if it is rented during this time.

 

thanks for your reply. So to confirm, if I dont end up ever renting the property out between planning stage and demolition, and leave the current dwelling vacant, it would be fully exempt from CGT as no one would have occupied the dwelling until I moved into the newly constructed dwelling? Provided of course it is capital as opposed to revenue.

 

That is something you need legal advice on. I would have to look at the section and interpret it and see if there is any case law.