Main Residence CGT exemption
Whenever a property is occupied as a Principal Place of Residence (PPOR), it will be exempt from capital gains tax (CGT) for that period of time. Under the 6 years rule, a property can continue to be treated as your main residence and fully exempt from CGT if sold within six years of first being rented out. However, there is a common misunderstanding of the 6 years rule.
To eligible the 6 years rule, the property must be treated as an owner’s PPOR immediate after the acquisition. A simple PPOR nomination will not be sufficient to claim the property as your main residence. To claim the full CGT exemption for a PPOR, you and your family must be physically move and live in the property after the purchase whenever it is ready for accommodation. The owners need to live in the dwelling for at least three months before they move out and use it to produce income.
If the owner moved out of their PPOR property and rented it out, they can claim an exemption from CGT for a period of up to six years after they moved out. When the dwelling is reoccupied as the main residence, the six-year exemption will be reset. So another six years of exemption is available from the date it next becomes income producing. The exemption is only available where no other property is nominated as the main residence.
There is an exception for the one main residence only rule. When you acquire a new home before you dispose of your old one, both dwellings can be treated as your main residence for up to six months if:
- the old dwelling was your main residence for a continuous period of at least three months in the 12 months before you disposed of it;
- you did not use it to produce assessable income in any part of that 12 months when it was not your main residence;
- the new dwelling becomes your main residence;
If you start using part or all of your main residence to produce income without moving out or vacating the property, a special rule will apply in regards to the way you calculate your capital gain or capital loss. For example, the main residence was used as Airbnb occasionally. In this case, the owners are deemed to have acquired the property at its market value at the time they first used it to produce income if all the following apply:
- the property was acquired on or after 20 September 1985;
- you first used the property to produce income after 20 August 1996;
- when a capital gains tax (CGT) event happens in relation to the property, you would get only a part exemption because you used the dwelling to produce assessable income during the period you owned it;
- you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income.
Here at the Quinn Group we can assist with any questions regarding your potential Capital Gains Tax liability or help if you have been notified of an impending audit in relation to your previously lodged income tax returns. Contact us on (02) 9223 9166 to discuss with one of our team of tax accountants or tax lawyers or fill out an online enquiry.