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

However a property NOT tenanted may be excluded from the calc of the 6 years since the 6 year rule applies ONLY to income producing property while absent. Non-income producing has no time period.

eg Property rented for 5.5 years then vacant for 8 mths then re-occupied as owners home this property could still retain 100% exemption.

But typically to be of any value as Terry says the owners and family must reoccupy as their main residence to get a extension to the 6 years. And yes then it repeats. Maybe.

 

Thanks for the replies! So days empty add to the 6 years. Moving back in and out again resets the 6 year clock for another 6 years.
I'm curious about a hyperthetical situation: what if there was someone living there, a weekly rent was not charged, but they were paying all the bills (Water, Electricity, Insurance, Council, Land Tax etc). The property is not income producing, so theoretically not liable to CGT. Correct or wishful thinking?

 

If the property is not income producing then the 6 years becomes indefinite.

Tax Tip 177: Stretching the 6 year rule indefinitely Tax Tip 177: Stretching the 6 year absence rule indefinitely

But in this case the question would be - is the payment of the expenses income to the owner?

 

Payment of occupancy costs like electricity is not income since the occupant incurs these costs. But the occupant paying paying ownership costs is income since the owner incurs the outgoing for rates and the occupant has paid this by agreement. That is constructive receipt of income. The owner has receipt of rental income identical to the outgoings. As owner you arent charging arms length rent so the tax ruling considers that your tax position is limited to claiming deductions up to the extent of income received.

And you have a 6 year absence period. Not unlimited. I recall this issue came up long ago in a tax case. Family stayed in the property "rent free" but paid ownership costs - even just $1. AAT held that the indefinite rule did not apply and so the main residence absence rule had a time limit.

And the rule in s118-192 may apply or even allow 3rd element costs to be added to the costbase

 

Would this rule.apply to me
I lived in the house for a year before renting it out and betwen it being empty its been occupied for 6 years.

 

possibly.

 

1. s118-192 may mean the costbase is the MV at the earliest time it started to earn income but only if it was 100% exempt up to that time
2. 6 years exempt then
3. After 6 years its then pro-rata eg after 7 years 1/7th taxed, 8 years its 2/8th and so on.....

Other issues may impact
1. Where did you live while absent ? If owned you may want a choice of which is exempt in the 6 years
2. Partner / spouse ? Their choice of main residence may also impact your exemption. You cant both be absent from former homes for example. A family can only have one 100% exempt for those days. (or 50% each)
3. Tax residency (if non-resident at any time)
4. Business use or partial income producing use before you moved out.
5. If 4 applies this affects s118-192. BUT means 3rd element costs may be used for the time it was vacant.

Thats just some of reasons Terry said "possibly"

 

What about if you buy an investment property rent it out straight away then decide 4 years later to live in it for 1 year then rent it out again? If i went to sell would I still have to pay CGT?

All within the 6 year period.

 

Yes, exemption would not apply until you lived in it.

 

So If I moved back in and advised it is my PPOR, how long would I have to live there before selling it without paying CGT?

Not planning on selling, not anytime soon anyway. But I am curious.

 

It would always be subject to CGT

 

Consider the following scenario:
Family with two adult non-dependent children live in Property 1 (which is owned only under parents' names).
Property 2 is purchased in all family members' names (under OO loan).
Children move to Property 2 treating it as PPOR. Parents remain in Property 1 and use that as their PPOR.
After 12 months, children move back to Property 1 and rent out Property 2.
Property 2 is sold 5.5 years later.

Questions:

• Was it valid for the children to treat Property 2 as PPOR while parents continue to use Property 1 as their PPOR?
• Assuming yes to 1st question, is Property 2 then CGT-exempt?

Thanks in advance.

 

Adult kids should be paying rent so which ever property they were in should have cgt.
Except when they live with there parents

 

1. might be depending on circumstances.
2. it could not be exempt if property 1 is claimed assuming the parents own it. But each taxpayer will need to work out their own position.

 

Property 2 will have some cgt issues as it looks as though parents have a legal interest in the property and have never used it as their main residence.

Parents wont be able to apply the main residence provisions to Property 2. Is it tenants in common or joint tenants ?

 

Even if parents did live in 2 then its not going to be 100% CGT free due to wider legal interests than the occupants.
Land tax ?.
Issues concerning tax residency ?
Issues of fact and possible use of the absence provision which ONLY affect the parents also need consideration. It could also render the other property further subject to CGT.

 

Tenants in common, equal share.

I see. The parents will remain residents for tax purposes.
So if only the children move there and treat it as PPOR, then half the property is CGT-exempt?

 

Each tax payer will have different tax positions. its as if they owned separate properties.

 

Hi all,

I bought a duplex pair on one title on the Gold Coast in 2004 and moved in immediately.

I lived there for 8 years until November 2012, when I moved out to live with a friend in Sydney.

I rented out one duplex from July 2013, and it still has tenants in it now.

I intend to move back there in the other duplex/unit at the end of this September.

The tenants will still stay in the other unit for several months.

Will there be capital gains tax for the period until now ?

Many thanks for your expertise.

 

Yes