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

This might help

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

 

Missing = Costbase on the date first rented ? April 2017 ? s118-192 requires the costbase at April 2017 to be ascertained. This is the market value on the date the property was first used to produce income. It "locks in" the CGT exemption. I note you are "retired nomads and travelling" and assume Australian tax residents at all times in the absence.

Then prorata. 417 / 2556 x Profit

1/7th likely taxable. Also allow selling costs as a costbase increase.
then 50% each owner
then 50% general CGT discount each taxpayer

 

Hi Paul, thanks for your reply.
You are correct - we are tax residents of Australia at all times.
Based on your reply we use the market value from April 2017 (date first used as income producing) for the CGT calculation which is what I was trying to clarify.

The only thing I can't work out is how you calculated the 2556 figure (should it be 2608 - no. days in 7 years?).
Could you please clarify - thank you.

 

Yes the is reset to market value when it is first rented out. Then the capital gain is apportioned.

 

Can anyone offer suggestions as to how we get a retrospective market valuation done on our PPR that would satisfy the requirements of the ATO?

 

Valuers do this all the time - costs a bit more tho

 

I used 365.25 days x 7. There are not 2608 days in 7 years. Obviously you will use actual dates.

(There is a leap year which adds a trivial tax benefit and should not be ignored. I suggest using excel as it will calc actual days well.)

 

Thank you Terry.

 

One benefit to valuers is they may give a higher end valuation for that purpose where you explain the need.

 

Based on @Glenn777 's scenario, if he were to store the caravan and resume residence in the property for a period of, let's say 2 months (and use the opportunity to prep for sale), his main residence/6 year is reset and the sale would be CGT exempt.

Have I got that right?

 

I'd look very carefully at leaving it empty for the last year. In my experience it wasn't worthwhile going over the 6 year mark: the net rent received for the period over 6 years didn't cover the CGT. Stay under the 6 years and thus no CGT.

 

I've had to get retrospective valuations. Not a problem, however:
- Do your own research first, so you have a list of comparable nearby properties sold at around the date you need the valuation for
- Don't leave it too long, the longer you leave it the harder it gets: the details of older for sale listings disappear making it harder to get comparisons (you can also download and save these listings yourself)
The valuer will ask what the valuation is for, and whether a higher or lower valuation is needed. In your case a higher valuation for the day first used to produce income would be needed to lower the CGT.

 

I think that is correct however we would need to resume residence before the end of the 6 year period.

 

There is no need to be living in the property when sold for the 6 year rule to be used. @Baker not sure if that was what you are asking?

 

Hi,


I need to get some understanding on this 6 yr rule work under the following scenario please.


Property 1:

Bought as PPOR in Oct 2014 (settlement). Moved into the property a few weeks after settlement from parent's place.

Now become an IP from Nov 2020, after I moved out in Oct 2020 to rent somewhere else.


Property 2:

Settlement in June 2021.

For the 6 year rule to kick in, do I need to move in straight away after settlement, i.e. within a specific period of time, e.g. within max 2 weeks after settlement, etc? Or, is it OK to leave it empty for a while as long as it is not producing income?


Also, to be eligible for CGT exemption, is there a minimum period of time where I need to live in the property?

I read somewhere it is min. 3 months, is this correct?

If so, then I assume it is 3 months from the settlement date?

Fast forward to future, if I sell property 1 before 6 years from Nov 2020 (when it became IP after previously a PPOR), will it be CGT free?

TIA

 

Property 1 could be subject to pro-rata CGT as you said "Moved into the property a few weeks after settlement from parent's place". This may not be as soon as practicable and mean the MRE doesnt commence imemdiately. Need advice. It may even provide an advantage of third element cgt costs.

Property 2 must be occupied as soon as practicable after completion. failing to do that can delay commencemnet of the MRE. But also may remokve the s118-192 valuation issue. You cant be absent if you didnt commence to reside. Whether it producesincome or not has no bearing. It a ownership interest so CGT applies unless it becomes exempt.

The 3 month rule is only contained in the provisions for a newly constructed main residence or substantial renovation. In which case the period of time between occupancy and contracting to sell must be at least three months. The contract date and not the settlement date are relevant.

Perhaps, perhaps not. Selling any property will impose a CGT consequence on another where on any days both could be eligible for exemption as well. In such cases it is wise to calculate potential CGT outcomes of both choices and compare. We do that frequently.

I suspect you need personal tax advice. There are many things I havent mentioned here which may impact issues

 

moving in might not be enough either. You have to make the property your main residence.

 

How to make a property main residence? I thought living in it means that?
What are the qualifying criteria?

 

The phrase 'main residence' are not defined so they take their ordinary meaning.
Someone could move in, but not be living in it, or living in another property for example

 

And not just the taxpayer. Their family. Their possessions. Connect services and use them etc. Common law also consider the work "main" as well as "reside" ie residence. Someone who claims to have a bed and nothing else wont likely satisfy the test if residing.
A taxpayer and spouse (defacto etc) may only have one main residence.

Many people think changing your license is enough as the ATO mention it - Its one of many indicators. However, actual residence is a must. There are loads of tax cases
The main residence exemption is not based on one factor alone. The weight given to each varies depending on individual circumstances. The length of time you stay there and your intention in occupying it may also be relevant.

Your main residence