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

My friend is looking to move out of her long term PPR but still nominate it as tax free for CGT purposes.

The property is likely to be rezoned in the next few years for up to 40 standard lots on it. If they sell with a DA will it still be CGT exempt or do they have to sell as a raw lot?

 

If they get a DA that may turn it into a profit making venture which may be taxable. They should seek expensive tax advice.

 

Good reading and enjoy the tax tips....just to clarify if 6 years applies...own PPOR for 6 years, then rent it out and has been for the last 2 years...I now rent in a better suburb and dont own another house, just this current IP ...do i still have 6 years to move back..well 4 actually...?

 

Yes it could apply like this.

 

If the entire original block does not exceed 2 ha and was actually used in connection with the residence then disposal of the land in the one transaction to the same party could still access the main residence exemption.

Whether adjacent land comes under the main residence exemption is a question of fact so gather your evidence.

All this is purely academic if your activity amounts to a subsequent business or profit making scheme by acts of substantial development of 40 blocks for sale in bulk to one party, in which case ordinary income may apply. The question is one of degree of commerciality and evidence of profit intention.

 

Council rezoning land doesnt affect CGT. But applying to Council for changes to zoning and subdiv / DA etc could be evidence. Council records have been the bane of many taxpayers.

 

Two homes - reside in half the time each? That is my dilemma. Current PPOR too far away from work. Purchased new residence to save time travelling. What do I do now?
There will be overlap while working this out.

However, in terms of finance:
Loan - is the loan for 'b' an OO loan or an Investment loan? Can you have two OO loans?
Stamp Duty - Can I nominate 'b' as OO? (Vic)
Land Tax - On the form do I just nominate for that particular year which one is the PPOR to get the exemption.

Current PPOR - rent it out. No intentions of selling it.
If I live in new PPOR do I lose the 6 year rule for the current PPOR?
Or do I keep the exemption for the current PPOR but will have to pay CGT on the new PPOR
Either way - should I move in to the new purchase at the start?

Any straightforward advice?

 

You can only have one main residence for income tax puporses.
And for land tax purposes you can only have on principle place of residence.

Loans are irrelevant for determing this.

 

One main residence - understand
Land Tax - one understand

In the above threads there was comments about being able to choose which property is the PPOR and which is exempt. My confusion comes in that when you purchase the second property isn't that when the decision is made - because you pay stamp duty and potentially land tax(if keep as IP).

On property 'B' which will become PPOR do I note it as such. Stamp duty is 3k less for PPOR. If I change my mind after the house settles an keep my old as PPOR?

For loans - there are different interest rates for OO v IP. If I elect OO am I allowed to change my mind?

 

Don't confuse state taxes with federal.

For income tax purposes (commonwealth) you could treat either property as the main residence if you have actually lived in both as the main residence. Your new property may not qualify if it is not your main residence.

Stamp duty is a state tax and doesn't directly relate to income tax.

For loans that is a matter of you declaring to the lender whether you will be living in the property or not.

 

Thank you Terry - got it now!

 

Thank you Terry for your always helpful posts
If one chooses to rent main residence for up to 6 years

1. Can they empty offsets and then claim full deductibility of loans pertaining to that property.
2. If the property is in joint names. Can one do a spousal sale for their 50% ownership. New loan to purchase the spouse's share and have this loan deductible?
3. Would one bother with number 2? What are the potential problems?

 

1. Yep. the beauty of the offset account is fully felt when you do this.
2. Yes this could be possible.
3. Depends on the costs and the amount of loan outstanding. In VIC costs would be minimal as no stamp duty.
Another strategy is to hold off on this and do it later as more equity builds up so you pay more non deductible debt down.

 

CGT, duty concession rules based on state of property, land tax. All easily addressed with advice before acting.

Further concern may need to address Part IVA. A systematic process can become a scheme and where there is a tax benefit derived then a ruling to get clarity may be prudent too.

 

Thanks Terry & Paul

I understand that we must be absent (not living there) from the property. Does the manner in which you rent it out matter?
1. Whole house and land long term rental
2. Whole house long term rental
3. Whole house but room by room
4. Whole house holiday let / stayz etc
5. B&B option
6. Air bnb?

 

no it doesn't matter. You don't even have to rent it out.

 

Hi @Terry_w. Very interesting topic.

Could you please clarify the cases when say we move into the newly constructed house, while we live there we construct a granny at the backyard. Two cases from there:

1. Rent granny while still living in the main house.
2. Move out and rent main house and granny.

Does granny have any impact on 6 year rule in those scenarios? When we decide to sell within 6 years do we get 100% CGT exemption based on this rule?

 

1. Rent granny flat while still living in the house gives only partial main residence exemption.

Ancillary buidings and adjacent land not being used in association with a main residence. i.e. not integrated.

2. Move out and rent main residence, granny flat was and still is rented separately.

Only a partial main residence exemption for the main dwelling and adjacent land used in association with that dwelling.

The granny flat was not being used as a main residence at the time you vacated.

A similar result if you used part of the main residence for income purposes just prior to vacating.

 

Thanks @Rob G. What if we use both dwellings as PPOR (say grandparent lives in granny while we reside in main house) and then move out and rent both?

 

Seek personal tax advice. If the GF is stand alone then apportionment will be a issue.
And subject to land tax of course.