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

Yeah, right.

I have always told people move in if it is your new home, def seems simpler.

 

What happens in this scenario:
A couple own their PPOR as joint tenants. They move abroad for 4 years, PPOR is rented out. An elderly parent who lives near the PPOR reaches the stage when they need daily care. One of the couple returns and lives in the PPOR to be near the parent and care for them. The other of the couple returns to the PPOR for a few weeks only. The one remaining in the PPOR makes brief trips abroad. So one of the couple is mostly physically present and living in the PPOR, and the other comes and goes, as do the adult children of the couple. This situation continues for months, maybe years, until the parent agrees to move to a nursing home. The couple are then able to reunite abroad and the PPOR is again rented out. The couple continue to make short trips to visit the elderly parent, but do not occupy the PPOR on these trips. Was the 6 year rule reset by the period of occupancy when one owner is mostly present and the other occasionally?

 

Joint tenants are considered to be tenants in common in equal shares for CGT. Each owner has a separate CGT asset - their share of the property. On a strict reading of the law if one spouse moves back in and out again the 6 year rule will be reset for them. If the other spouse didn't move in, then it wouldn't be reset for them. = based on my memory of the legislation.
But, you would have an arguable case that it should reset for both. You should seek specific tax advice.

 

Thanks Terry for your quick response!

 

A main residence exemption has some conditions
1. The family reside there (incl dependent children)... less an issue I suspect
2. That the property is the MAIN RESIDENCE.
At best the occupancy is temporary and there is no intention to reside. It is not the main residence. Only a intention to occupy for a temporary period.

The 6 years will not reset in the example provided if they do not occupy. One of a couple residing for a few weeks does not establish the property as the MAIN residence of non-resident owner. The resident owner may have an exemption however (s118-170). Note s118-145 refers to "your" ie 50% is exempt after 6 years. This is because CGT laws tax each interest.

The reset rule is silent on the issue however the primary taxing rule is the main residence exemption . Subdiv 118B of the Act governs what is a Main Residence together with common law and rulings.

 

Thanks for your response Paul!

I found this piece of info on the ATO website which shows with an example how s118-170 and s118-145 interact:

Legal Database

This indicates that the husband would make a choice under section 118-145 that the PPOR is his main residence. Then both spouses can treat the PPOR as their main residence under section 118-170(1)(a). The six year rule applies to both in this example. Quite an interesting twist to the 6 year rule!

 

Reelecting after 6 years however is not addressed and the limits of -170 then impact with a 50% issue

 

Hi Terry,

So i have lived in the 1st PPOR for 10 years, about to move into my 2nd property for a bit, then rent out, planning to sell it within 6 years. I can claim it as PPOR and sell CGT free. Then I’ll move back into PPOR and live there for a number of years before selling. I now only have 1 PPOR, surely I don’t have to pay CGT?

 

Both wouldn't be CGT free

 

Why wouldn’t it be with the 1st one if I moved back in before selling and claim it as my ppor, all within 6 years?

 

Is there an over lapping period? You can only have one main residence.

 

There are none listed under the act.

 

Clicked the wrong delete button.. thanks for your quick reply Terry

 

@Terry_w just to make it clear if I am living in my main resident for 9 years after purchase and move out and rent my main resident for 3 years and sell after 3 years, I will pay no CGT right? Or the rule is all about first 6 years of purchase.

 

It could potentially be CGT free. The '6 years' refers to the period of absence, not the time of ownership.

 

My husband and I own a home in Canberra (bought in 2007) and we have recently bought a flat in Townsville, where my work is located. My work will be up here for the foreseeable future, and I spend 2 weeks in 3 living in Townsville and 1 week in 3 living in Canberra. Should the Canberra house or my Townsville flat be my PPOR? If I have claimed the Townsville flat as my POR for the Queensland transfer tax concession (which I have done, though that is a reversible decision), does that set in stone which property is my PPOR when the time comes to sell one of the properties down the track? Does it matter which address I use on the electoral role and which address I use for my drivers' license and car registration? (Currently all the Canberra address).

 

state laws differ from commonwealth laws so a property may be your PPOR but your not main residence and vice versa.

Which you should apply the CGT exemption to will depend on the circumstances, but only has to be decided on the sale of the first of those properties.

 

The importance of the words "MAIN RESIDENCE" needs to be considered too. Having an alternative home doesnt mean its a MAIN residence. This issue often is a issue for land tax exemption (PRINCIPAL place of residence) and Commonwealth CGT (MAIN residence)

A spouse with a different residence and a family (ie dependant kids and spouse) with a different residence could be a key issue

 

I've read some of these posts multiple times and I'm mostly sure I understand it but just want to clarify:

1) Buy a house, move in, and rent it out 5 years later. If I sell within 6 years of renting no CGT paid
2) Buy a house, move in, and rent it out 5 years later. If I sell in 10 years after renting it out (15 years total), 5+6=11 of those years will be exempt. The CGT calculation will be based on [value at 15 years]-[value at 11 years] (cost base will be the value at 11 years?)
3) Buy a house, rent it out for 3 years, then move in for 3 years then sell - 50% of the gain is assessed (so 50% of 50% of the gain)
4) Buy a house, rent it out for 3 years, then move in for 3 years and rent it out for 10 years then sell (total time = 16 years). So 7 years counted as income producing?

 

1. possibly
2. See
Tax Tip 109: CGT and Being absent from the main residence for more than 6 years Tax Tip 109: CGT and Being absent from the main residence for more than 6 years
3. yes but 3rd element cost base expenses too
4. could be 3 years plus tax tip 109