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Tax Tip 135: The 6 year rule and renting part of your property out

Discussion in 'Accounting & Tax' started by Terry_w, 14th Jun, 2016.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The 6 year rule and renting part of your property out


    The 6 year rule allows a person absent from their property to continue to treat the property as the main residence – under certain conditions, see:

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

    But where you are renting out part of your property this rule cannot apply. This is because you wouldn’t be absent.

    In situations like this the property becomes income producing so its cost base is reset to the value as of the date the interest would have been claimable. The part of the property rented would then result in CGT being triggered when the property is sold.

    Example
    Renting out one room of your 2 bedroom unit. The 6 year rule could not apply if you were still living at that unit. Since the unit would become income producing it would be subject to CGT with the cost base now being the value at the date it was first rented. Half the property would be subject to CGT and half would be exempt.
     
  2. Peter P

    Peter P Well-Known Member

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    Say you have a 3B house, where you lived, and a 2B granny flat for rent. 3/5 would be exempt from CGT and 2/5 subject to CGT? I.e. is the proportion exempted based on # bedrooms rented vs not rented?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Probably land area would be a more appropriate way to apportion it.