6 year rule

[alpina]

Has anyone been able to find any information about this rule on the net, preferably from an ATO site? Its one of those rules that just seems too good to be true.

For eg, is it really saying that a person can buy their PPOR, live in it for 6 or so months, then rent it out and claim all negative gearing benefits as long as he/she doesnt do it for more than 6 years and have another PPOR. Does it then go further to say that if the person moves back in before the 6 year period that they can do the whole process over and over again?

This all sounds too good to be true, especially for those advocates who say renting is much better than buying your own PPOR. Think of all that capital gains tax free that could be achieved, not to mention all those negative gearing benefits (depreciation and interest repayment).

Please tell me what I'm missing? I cant see why the ATO would support such a rule!

[see_change]

Has anyone been able to find any information about this rule on the net, preferably from an ATO site? Its one of those rules that just seems too good to be true.

For eg, is it really saying that a person can buy their PPOR, live in it for 6 or so months, then rent it out and claim all negative gearing benefits as long as he/she doesnt do it for more than 6 years and have another PPOR.


My understanding of this rule ( second hand , no ATO quotes to back it up ) is that you can only claim / have one PPOR at a time. You may also find ( my supposition , and this may be well incorrect ) that you need to have a reason why you're not living in , but are still claiming it as your PPOR .

I'd have a good bet this rule was designed to benifit politicians and diplomats who may have a home PPOR , but might spend long periods of time away from their home.

Although this is again speculation , the ATO may decided that if they think you're doing things purely from the tax avoidance issue , eg , you'd lived in one house for six months and then moved into another house next door , but still claimed the first as your PPOR, they may dispute your claim.

If on the other hand you'd moved up to Townsville for five years, and kept your PPOR in Melb or sydney , you'd have a pretty sound case.

Any comments ?

See Change

[Peter 14.7]

I thought it was 12months live in and yes no second PPOR.

So if you own PPOR and buy another home where you move you have to either rent it out or rent from your self ( tricky structures here) or call the new home PPOR and lose CG tax free status.

Good if owning one 1 home but multiple IP.

Peter 147

[rich ando]

I am currently doing this after moving interstate...

It was designed for precisiely this reason.

not sure waht happens when you move back in ie does the clock wind back and start another six year period...I would say yes..

Another thing to watch is that I think (not sure) that you ahve to pro-rata the capital gain...that is the gain that you make while not living in it is not tax free..

Richard

[alpina]

Another thing to watch is that I think (not sure) that you ahve to pro-rata the capital gain...that is the gain that you make while not living in it is not tax free..

Richard

This would make all the difference as I do not believe that under the rule, you have to pro-rata the CG. If you did, then it would be any different to what happens when you move into your IP as your PPOR, and thus there would be no advantage whatsoever.

Definitely not talking about the having mutiple PPOR's here so lets not confuse the question by adding in that scenario :)

In regards to reason, what about not being able to meet the repayments and thus finding somewhere much cheaper to rent whilst somebody rents your PPOR?

Julie

[Davidr]

alpina,

Check out http://www.ato.gov.au/large/content.asp?doc=/content/31570.htm&page=11#P2452_207905

Short answer is yes you can. I couldn't see a minimum time frame. Look for the example of 'Ian'. It involves a couple of moves.

David.

[Thorpey]

alpina,

Check out http://www.ato.gov.au/large/content.asp?doc=/content/31570.htm&page=11#P2452_207905

Short answer is yes you can. I couldn't see a minimum time frame. Look for the example of 'Ian'. It involves a couple of moves.

David.


Excellent link Davidr !!!
Every investor should be heeding these references.

Cheers,
Thorpey

[Crystal]

Hi all,

From the ATO website...

Is the dwelling your main residence?

The following factors may be relevant in working out whether a dwelling is your main residence:


the length of time you live there—there is no minimum time a person has to live in a home before it is considered to be their main residence
whether your family lives there
whether you have moved your personal belongings into the home
the address to which your mail is delivered
your address on the electoral roll
the connection of services (for example, phone, gas or electricity)
your intention in occupying the dwelling.
http://www.ato.gov.au/large/content.asp?doc=/content/31570.htm&page=11#P2474_210708

Cheers,
Crystal

[chook]

OK- I understand that the second home you buy cannot claim CGT exemption if you nominate your original home as PPOR. So if you buy a second house and move into it, are all the costs associated with owning that second home tax deductible? Especially the mortgage payments? For example,

PP 200K
SD 10K
Mtge payments over 5 years 50K

Sale price 300K

Is gross profit 40K ? Is this how it works?

[madmurf]

Hi Guys

What about this variation.
Currently live in a PPOR and buy a block in June 2006.
Build on block (June 2007)and move in.
Original PPOR goes up for sale. I am unable to sell the original PPOR after living in the new PPOR for 4 months (November 2007).
Decide to sell new PPOR and move back to original PPOR.
New PPOR sells within 1 month and I move back to original PPOR (Dec 2007)
Question is do I have to pay CGT on the new PPOR?

My intention was to move house to reduce my loans. I was unable to support both Housing loans and in the end I sold the new house as the existing house just didnt sell.

My understanding is I dont pay CGT. ;)

[Mry]

A PPOR exemption is like an umbrella, you can only have it over one house at a time. When you move out of a PPOR, it can still be elected to be your PPOR unless you acquire a new one.

If you move out of a PPOR, you do not acquire a new PPOR and you do not use your old property to earn income, you can keep it as your PPOR with no time limits. If you start renting it out and do not acquire a new PPOR, you can avail yourself of the "Rule of Absence" which means that you can rent it out for 6 years with no capital gains consequences. You must either sell it or move back in before the timeframe in order to retain its CGT free state (unless it was used as an IP before it was a PPOR but lets not go there for now).

Also, if you move out of a PPOR and into a new PPOR, you have 6 months to sell the old PPOR before CGT starts to apply (as long as you lived in the old PPOR for 3 months within 12 months of the disposal and you did not use it to produce assessable income when you weren't living in it within those 12 months (ie renting)).

Chook - You need to be earning assessable income in order to claim a tax deduction for the property so you will be relying on Capital Gains here to claim back those expenses. You should be accumulating those costs to claim when you the property is sold to reduce the capital gains. And its interest, not mortgage payments, that reduce the gain.

Madmurf - The 6 month rule for changing PPORs and the pre-occupation exemption (Section 118-150) mean that it will be tax free. In addition to the rules you must follow for the 6 month rule, you must also move in as soon as is practicable after completion and live there for at least 3 months. The period of construction must not take more than 4 years either.