6 year rule on PPOR

[Melvin257]

Hi,

Would appreciate if someone could help me with the below.

- Build a property in 2011 and after about 7 months mvoed to a neighbouring surburb and rented the property.

- Buying another property this year and want to move into it for 2 years and then rent it out. However I would like to get into the 2011 property and make it as my PPOR after 2 years.

Will I be liable for CGT for my PPOR even though I rented it out , but I will be getting back into it before 6 years.

What would the tax implication be and is it possible to do that.

Regards,
Melv.

 

[Paul@PFI]

More info needed.

When you built in 2011 did you and family fully move in after final completion ?? How long ?? Was it for the seven months after completion ?

When you moved out in 2011 ((?) mm/YY date please) where did you reside ? Spouse property ? Rented, Family ?? O/seas ?

The above issues need to be determined to see if the 6yr absence rule applies. It has two key conditions.

Simple rule of thumb is disposal of ALL CGT assets = a tax liability until it is determined to be exempt or eligible for discount etc.

 

[Melvin257]

Sure paul

- We moved in after final completion August 1 2011, and stayed for for 7 months

- Moved out on 1st of March 2012 and was renting at a neighbouring surburb ..Currently still renting..

 

[marg4000]

You will only be able to claim one PPOR at a time.

If you want to keep your 2011 property CGT free when you move back in, then you will not be able to claim PPOR exemption when you buy a property this year and move into it.
Marg

 

[coastymike]

sounds like

1. Aug 2011 property your PPOR. Around March 2012 you moved out and rented it.
2. can apply six year main residence absence provisions so would bring you up to March 2017 6 years later.

so if sold now could apply the main residence absence provisions.

New property you purchase won't be eligible for the main residence exemption if you apply to first property BUT third element costs might wipe out any potential capital gain. Keep receipts for everything during the time your second property is your PPOR if you apply the main residence exemption to the first one. Council rates, insurance, interest on borrowings, repairs and maintenance (even replacing one light globe). It all gets added to the cost base.

 

[Melvin257]

Thanks Coasty

I am intending to only claim CGT exemption on the 2011 property when I move back in after 2 years. I am worried that I may not be able to get it.

I am downsizing and moving into a smaller property and will move out in ~2 years to the 2011 property. I do not have any intention of claiming full CGT exemption on the 2nd house.

Question:
Is my assumption correct that if I move back in the 2011 property before 6 years and then stay for a year in the house and sell it, I can claim full CGT exemption.

Apologies if this is a stupid question.
Melv.

 

[coastymike]

Ahhh ok i think i understand.

You are worried the six years will expire. Ok good news. Once you move back in again the six years start all over again.

So can apply it twice to the same property.

 

[Melvin257]

Thanks Coasty,

When you say the 6 year rule will start all again. Do you mean I got to live in it for another 6 years before I sell ?

Or provided I get into the PPOR before 6 years from the time I moved, I will be fully exempt from GCT ?

Appreciate your feedback

 

[coastymike]

melvin

no doesnt work like that. You don't have to live in it for six years at all. You have to have made it your main residence which it sounds like you have. no need to live in it for six years. no need to hold it for six years.

ok you get up to six year for a main residence abscence provision. so if you live in it - move out and then sell it four years later the rule applies.

now if you move out and rent it then up to six years. so what happens in you rent it for 5 years and then move back in.

well you get the main residence exemption for first period i.e. the 5 years rented. then if you move back in again the six year rule starts all over again. so lets say you lived in it a second time for 2 years and then rented it out again for another 4 years after that second period you could also apply the six year absence rule AGAIN

 

[Melvin257]

Thanks Coasty you are a star. Appreciate it.

 

[Investordezz]

Hi All, further to this 6 year rule i have had 2 conflicting stories from accountants however im really shitting bricks because i have already sold a place based on the advice of the first accountant.

The story is i bought my first property in residential mount druitt and went with first home owners grant and lived in it for 8 months. I then rented it out for 2-3 years and then sold based on advice that would not have to pay capital gains as i can still count it as my PPOR for tax purposes for 6 years after moving out. Can anyone shed any light on this for me.

 

[ChrisA1]

Hi All, further to this 6 year rule i have had 2 conflicting stories from accountants however im really shitting bricks because i have already sold a place based on the advice of the first accountant.

The story is i bought my first property in residential mount druitt and went with first home owners grant and lived in it for 8 months. I then rented it out for 2-3 years and then sold based on advice that would not have to pay capital gains as i can still count it as my PPOR for tax purposes for 6 years after moving out. Can anyone shed any light on this for me.

Reading the above posts, where did you live while it was rented out? Were you renting as well or did you buy another house to live in?

 

[coastymike]

Dezz

Sounds ok to me. You acquired a main residence. Lived in the main residence and then moved out. So from the time you moved out it is eligible to be your main residence for up to 6 years. If you make that election then that property wouldn't be subejct to CGT if sold 3 years later.

However if you have another property that you moved into during that time then that new property WILL be subject to CGT. Not the old property with the election but the new one. Make sure you keep all receipts such as council rates, insurance, repairs and maintenance and interest as this will add to the third element and increase the cost base reducing the CGT on sale.

If you rented a property after you moved out then it's all easy.

 

[Terry_w]

Hi All, further to this 6 year rule i have had 2 conflicting stories from accountants however im really shitting bricks because i have already sold a place based on the advice of the first accountant.

The story is i bought my first property in residential mount druitt and went with first home owners grant and lived in it for 8 months. I then rented it out for 2-3 years and then sold based on advice that would not have to pay capital gains as i can still count it as my PPOR for tax purposes for 6 years after moving out. Can anyone shed any light on this for me.

Sounds like this could be correct.

 

[Investordezz]

I moved back into my parents with them,

How should i go about resolving the situation. I have a draft return that needs me to pau like 30k which i dint have because the accountant think i should pay cgt?

 

[Terry_w]

I moved back into my parents with them,

How should i go about resolving the situation. I have a draft return that needs me to pau like 30k which i dint have because the accountant think i should pay cgt?

You could either

Pay the $30k

or

Get a new accountant for a second opinion.

 

[Paul@PFI]

I moved back into my parents with them,

How should i go about resolving the situation. I have a draft return that needs me to pau like 30k which i dint have because the accountant think i should pay cgt?

You should go back to accountant and re-iterate that you consider the CGT is an exempt gain under the six year rule. They should correct it and at no additional cost.

Have you clearly explained this to them ?? They may be unaware it was a former PPOR and that you had no other main residence duting the three years after moving out. You are UNABLE to be taxed on an exempt gain....If its a loss the same applies.

I consider it very important to document CGT issues. That way future mistakes which cost taxpayers are avoided.

 

[coastymike]

that you had no other main residence duting the three years after moving out

and even if he did have another main residence then can still elect for the first property to continue to be the main residence. just means the second property the person is living is in now subject to CGT. But given all the third element costs get added to the cost base (particularly if there is a loan on the property) it is actually a smart way of getting tax deductions on your PPOR.

 

[Investordezz]

I have already stressed the situation and all details to him.
He wants payment also even if i get the return done with my other accountant who said there would be no cgt.

And why would i pay the 30k?

 

[Terry_w]

Ask him why he thinks CGT would apply. And then argue your case why it shouldn't apply. Take it from there.