Tax Tip 177: Stretching the 6 year absence rule indefinitely

Discussion in 'Accounting & Tax' started by Terry_w, 2nd Jul, 2018.

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  1. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Stretching the 6 year absence rule indefinitely

    Most readers will be familiar with the ‘6 year rule’. This rule basically states that a person can be absent from their main residence for up to 6 years yet still treat the residence as the main residence for CGT purposes even if that residence is rented out. See

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


    The 6 year rule is covered by section 118-145 of ITAA97.


    What is less commonly known is that where the taxpayer is absent from their main residence and that residence is not rented out, or otherwise income producing, then there is no time limit. The property could be counted as the main residence indefinitely. The relevant legislation for this is subsection (3) of section 118-145 ITAA97 – i.e. section 118-145(3) ITAA97.

    Check it out yourself at:
    INCOME TAX ASSESSMENT ACT 1997 - SECT 118.145 Absences


    This handy little rule can be used in tax planning to save tax.


    The 6 year absence limit also starts again if the property becomes and the main residence once again and then the taxpayer becomes absent again. This is confirmed by the legislation which contains the following example:

    Example: You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house.

    You have not treated any other dwelling as your main residence during your absences.

    You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years.

    You can make this choice when preparing your income tax return for the income year in which you sold the house.




    So with careful planning the 6 year rule can be stretched out to be more than 6 years and possibly indefinitely.
     
    craigc likes this.
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    The catch to the indefinite issue is the ALP and Coalition plan to both end the main residence exemption for people who depart Australia to reside offshore temporarily. Its in limbo at present (after being passed by both houses !!) but in some form will get up at some point.