Tax Tip 292: The 6 Year Rule for CGT and the Need to move back in?

There is no need to move back into a property to be able to use the ‘6 year absence rule’ for CGT, s118-145 ITAA97.

Example

Maggie buys her first property and moves on 1 Jan 2020 and after a while she decides to move back home with parents and rent the property.

Maggie sells the property through a contract signed 31 Dec 2025 (just before the fireworks) without ever moving back in.

Can she use the 6 year rule? Not enough info to say, but as long as all other requirements are met, she can still count this property as her main residence, for CGT purposes, for the whole ownership period.


How do we know? Have a look at the legislation:

www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html

There is no requirement to move back in. Subsection (1) says:

(1) If a * dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

 

Yes a common misbelief. The "move back in" rule only applies to renew the 6 years again. And it can come with a trap.

eg Maggie buys her first property and moves on 1 Jan 2010 and after a year she decides to move back home with parents and rent the property. She leaves this property rented for 4 years until Feb 2015 and then moves back in. Aftre 6 months she moves for work or whatever other reason to a rented share house and rents the property again. A new 6 year period commences from the date she moves out. Maggie can repeat this process PROVIDED she moves back in and re-establishes the property as her MAIN residence. She cant just stay a night (nudge nudge wink wink) as this is not sufficient. So Maggie must do a little more than move in. She needs to establish that property as her home.

In the above case Maggie has yet to lose her tax exemption on the property as the initial occupancy was exempt and then it was exempt under the absence rule for 4 years. Then she restablished actual exempt occupancy. Then once again used the absence rule. Maggie will have until August 2021 to return and could repeat the cycle again.

 

One clarification that I have always been unclear on @Terry_w and @Paul@PFI : If you don’t move back in within the 6 years, and you sell the property after 6 years, can you claim the 6 year period as CGT free or do you have to sell within 6 yr of the last time you occupied the dwelling?

 

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

 

Yes and yes...but with some catches.
eg a net loss, spouse / partner cant also have a different main residence, the property you live while absent, non-residency and other factors can limit whether you CHOOSE the main residence exemption and the use of the absence rule if eligible. If eligible the maximum continual single period of absence is 6 years and then pro-rata tax applies. By returning and then departing again the 6 years can reset again provided thye return establishes a new main resdience and isnt just a temporary stay. s118-192 also should be understood if it applies as it can reset the costbase in some, but not al, instances. And in some cases where s118-192 isnt used there may even be opportunity to add in personal non-deductible costs to the total costbase prior to the pro-rata.

 

Thanks @Paul@PFI