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

Thanks Terry, I got the #1; however I'm still not clear about #2, we are going to live in IP this year, it's been renting out since 2012, if we sell the IP next year, (say after 6 months)& claim it as MR, do we need to pay CGT? Thanks

 

Yes it would be subject to CGT. In this case probably something like 90% of the gain would be taxed.

2012 to 2017 is five years. If you have lived in it for 6 months out of 60 months that is 90%

 

This is a great thread. Thanks Terry for the original tip and your diligence in answering questions. I've got a few of my own:

My wife and I recently signed a contract for an off-the-plan unit due for completion next year. Our plan is to live in it for the first year to satisfy the first home owner’s grant and stamp duty concession requirements, and then move out and rent it out from the second year onwards.

I understand from this thread that while we rent out the unit, we can claim deductions for relevant expenses AND still qualify for CGT exemption as long as we sell it within 6 years of moving out and declare it as our PPOR. Is that right?

If so, can we backdate claims for expenses incurred during pre-settlement, such as building inspections and conveyancing? If not, when is the cut-off date when deductions for expenses start applying? Is it the day our tenants move in, or the day we start making preparations to rent it out, such as the first phone call to a prospective property manager?

Also, I read elsewhere that to qualify for CGT exemption, we would need to have a ‘good reason’ for moving out, such as getting a new job in another city. Our plan is to stay in the same suburb as the unit’s while we rent it out. Will that disqualify us from the exemption?

 

Buidling inspections and conveyancing are capital costs so you cannot claim them anyway.
You can't start claiming expenses until it is available for rent.
No reason required for renting the house out. Get tax advice on Part IVA.

 

Great threat @Terry_w tried searching but couldn't find an answer to my question. Purchased house Jun 2011 claimed fhb grant lived in it for 6 months, then rented from Jan 1st 2012 till current. Plan is to move back in 2020 spend around 150k on a renovation then sell. Does the 6 year rule apply from jun 2011 or January 2012? Do I get a valuation done at the end of the 6 years? And then another one once it becomes my ppor again ?

 

Tip : Non-residents can sometimes have a AU main residence that is exempt under the absence rule. Unlike a non-resident rental that loses the 50% CGT discount. This issue requires a person who departs AU as a tax resident to be effective. (Conditions apply)

Special note a non-resident who does not rent the property may enjoy concessional or exempt land tax in NSW AND have a unlimited time period. (More conditions apply)

So here is a tip...A person who departs AU sometimes may be better off to not rent their home while absent. No land tax ? and no CGT ? and they arent affected by the loss of the 50% discount since its exempt. (Exemption trumps discounts in the Euchre version of the main res exemption)

 

Possibly a issue. There is a three month requirement to reside after a (major) reno.
Get personal advice

 

Should of mentioned, the plan is to spend 12 months in the property doing a major renovation.

 

So I can claim deductions on my loan's interest the day that my property is listed?

 

Good question - I don't think you would be able to if you are living there at the time.

 

What if we moved out by then?

 

Then yes, as long as it was genuinely available to rent and efforts were being made to rent it at market rents.

 

Does that mean that the loan for the PPOR automatically converts into an investment one from the day the unit is available for rent?

 

Its irrelevant what the bank classifies the loan as.

 

I see, so even if a bank has different lending criteria between PPOR and IP loans, once the loan is approved, it doesn't matter to them what purposes I use redrawn money for down the track?

 

That would depend on the terms of the loan agreement with the bank. But generally no approval would be necessary if you are using for residential property.

 

Does this work if I purchased an investment property first (never lived in it but was not tenanted straight away) then 6 months later purchased a PPOR. Can I claim in the future when selling that it was my main residence for 6 months and have that removed from CGT consideration?

 

no

 

Hi Terry,

Thank you for all the topics. I really enjoy reading it.

About 6 year absent rule, I have asked 3 accountants but they gave me completed different answers. So hope you could give me a right direction.

The story is:
I bought an apartment and moved in on April 2010. As this is a 3 bedroom apartment, my wife and I decided to rent 2 rooms out on July 2010.
We did not think or plan much at that time because we thought we will live in this PPOR forever....

Feb 2014, we decided to move out and downsized to rent a 2 bedrooms apartment. We rent out the apartment and let the property agent to manage it.

During the period July 2010-Feb 2014, we did Tax claim (33.33%) in interest/expense.
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We are planning to sell the apartment in 1-2 years time. So we would like to find out
1. how to calculate CGT based on our case? can we use 6 year absent rule?
2. what will be the best approach to avoid CGT from now.

One of accountants told me that we could not apply 6 year absent rule.
Another told me that we could apply the rule after year 2014 but I need to pay partial CGT on a pro-rata basis during July 2010-Feb 2014. She suggests me to get a valuer to do a property valuation in 2014.

Thank you in advance!!

Chc19

 

You could use the 6 year rule for the period you were absent but not while renting out the rooms so CGT would b payable.

I don't think either accountants are correct.