If you’re planning on moving from your current home but don’t intend to sell, you may be eligible for the six year Capital Gains Tax (CGT) exemption. The six year CGT rule is an especially useful exemption to understand if you are moving interstate or overseas to live and work for a set period of time.
So what exactly is the six year CGT rule?
When you first purchase a property it can be set up as either a primary place of residence or as a rental investment. Deciding what the property will be used for also determines how it will be taxed. Whenever a property is occupied as a main residence, it will be exempt from CGT for that period of time.
The six year CGT rule comes into play when the owner vacates the property and rents it out to someone else in their absence. In this situation the owner can keep listing the property as their primary place of residence and continue to be exempt from CGT for up to six years. If the owner moves back in within the six year period, the exemption rule resets. This means that if the owner wants to rent out their primary place of residence again, the dwelling is once again exempt from CGT for another six years.
The Australian Taxation Office has a list of possible qualifying reasons for a property owner to move from their main residence and rent it out. These include accepting a new job interstate or overseas, staying with a sick relative long term or going on an extended holiday. However, if you leave your primary residence and buy a new property, only one of your houses can be listed as your primary place of residence and claim the CGT exemption.
There is currently no limit on the number of times you can claim the six year CGT rule. You also don’t have to decide whether to treat a dwelling as you main residence as soon as you move out or start using the dwelling for income producing purposes. In fact you don’t need to make this choice until you lodge your tax return for the relevant year.
If you are considering renting out your main place of residence or need more detailed information on the six year CGT rule, the experienced lawyers and accountants at The Quinn Group can help out. Call us on 02 9223 9166 or make an online enquiry.