CGT exemption 6-year rule and spouses

[mimosa]

Hi,

Long time reader, hoping one of you kind people will be able to help.

My understanding is that if I was single, owned a house and lived in it for more than 12 months, moved out and rented it for less than 6 years, then sold it, that I could claim CGT exemption as long as I did not own another property that I considered to be my PPOR.

What if I am not single, and instead was living with my spouse in a home owned by my spouse for that time. Am I correct that only one of our houses can be CGT exempt for those 6 years? This was my conclusion when I last researched the topic almost 6 years ago , but I can't find the information on the ATO website now. Can anyone help me out with confirmation and ideally a reference?

Thanks!

 

[Paul@PFI]

A common question..

You can only have one main residence CGT exemption. Your spouse can only have one and jointly you can both have just one MR CGT exemption at any time. This exemption can be used in full or split. The ATO has some guidance here :
https://www.ato.gov.au/General/Capi...-or-children-live-in-a-different-home-to-you/

When you lodge your return you "elect" the CGT path. eg : If you claim the 100% CGT exemption on your home then the spouses residence is only 50% exempt later etc.... The example towards the end of the ATO webpage gives a good example of how Mark can choose, however it affects the other residence. This also applies in your case where there is no ownership interest. Your shared use of the spouse owned residence means it would then lose the 100% concession for the same period and a pro-rata 50% exemption only applies. s118-170 ITAA97 is the relevant law.

Obviously choosing 100% now defers all CGT as it then imposes a future CGT issue upon the other property. It may be worth looking at that value of that impact now.

 

[mimosa]

Thanks so much, Paul!

 

[r3ckless]

Regarding living in it for 12 months. DOes it have to be 12 months straight? or can it be in drips and drabs ?

 

[Rob G.]

Regarding living in it for 12 months. DOes it have to be 12 months straight? or can it be in drips and drabs ?

There is no 12 month requirement for main residence exemption.

This is a myth perpetuated by some people who are confused with some state revenue land tax laws.

In fact there is no 'Principle Place of Residence' for CGT legislation, another confusion with some state revenue law terms.

There is no legal definition of a 'main residence', it is a question of fact. Your continuity of stay along with where your family lives, belongings, utilities, etc.

Deliberately staying in dribs and drabs to try to accumulate 12 months indicates nothing without further compelling facts - lacks continuity.

 

[Paul@PFI]

Regarding living in it for 12 months. DOes it have to be 12 months straight? or can it be in drips and drabs ?

???

No such 12 mth rule for the MR exemption, that was just Mimosa's facts. In each case, its a question of fact. If your "reside" even for a short period the MR exemption may apply if all the other conditions are met.

Note that reside doesn't mean stay for a night or two. You must establish the place as your residence. That usually encompasses moving in with furniture etc and making it your home. Full occupation. A persons situation may change ie work relocation etc. This is OK and a common issue. Perhaps the minimum stay if a few days (rare), weeks or even a few months ? This happens. However a scheme where you "move in" with little or nothing, stay a few days then move back elsewhere seems problematic. It may also be challenged if you move from mum & dads and back, but if you move interstate etc the ATO are less likely to challenge that as its somewhat easier to prove such a relocation

Note that land tax may pose a separate issue. Land tax isn't as generous with exemption for a former residence.

 

[red liverbird]

The 12 months could be relevant if your accessing the first home owners grant - I know the requirement is 12 months in the ACT

 

[asdf]

Same recurring policies - penalise the middle class husband, wife + kids instead pass all benefits to the "abnormal" family units.

I would not get legally married and have your "spouse" pay rent. Problem solved. Unfortunately couldn't sell this idea to the Mrs and the traditionalists.

 

[Terry_w]

Same recurring policies - penalise the middle class husband, wife + kids instead pass all benefits to the "abnormal" family units.

I would not get legally married and have your "spouse" pay rent. Problem solved. Unfortunately couldn't sell this idea to the Mrs and the traditionalists.

Spouse includes defactos - even those that pay rent.

 

[sandyfeet]

Sorry to hijack this thread but my question kind of fits here,

I currently have an IP that is CGT exempt due to it being my former PPOR, the 6 year period expires at the end of 2015. If after this period I move back in will it then be considered my PPOR and:

1. Be CGT exempt should I sell whilst living there?
2. Be CGT exempt for another 6 yr period should I move out and rent it out again?

I have always rented outside of this property,

Thanks,

 

[Terry_w]

Sorry to hijack this thread but my question kind of fits here,

I currently have an IP that is CGT exempt due to it being my former PPOR, the 6 year period expires at the end of 2015. If after this period I move back in will it then be considered my PPOR and:

1. Be CGT exempt should I sell whilst living there?
2. Be CGT exempt for another 6 yr period should I move out and rent it out again?

I have always rented outside of this property,

Thanks,

If you reestablish it as the main residence then the 6 years will start again if you move out again.

 

[Gemini14]

I sought accountant's advice on that same situation and was told the exemption is 6 years maximum per property - so once you came back and living there it will be CGT exempt when you are selling, but if you moved out again there will be no further 6 years period. If you were renting it out for 5 years originally then it will have 1 more year exempt.

 

[hobo]

My understanding is different to that. Are you confident in your accountant's knowledge?

 

[Gemini14]

Yes I was surprised by that too as I thought the exemption can be applied again in future, but he was very specific that it is only 6 years over the eriod of ownership.
I also went to ATO website and it says there "The maximum period the dwelling can continue to be her main residence while it is used to produce income is six years. However, while the house is vacant, the period is unlimited... It doesn?t matter whether the period during which the home is used to produce income is a single block of six years or several shorter periods, so long as the total period it was used to produce income was no more than six years"

the key is it is 6 years while the property is actually under lease, not vacant etc

 

[Terry_w]

Have a look at the legislation, s118-145 ITAA97. It is very clear and even has an example which proves your accountant wrong:

Example: You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house.

You have not treated any other dwelling as your main residence during your absences.

You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years.

You can make this choice when preparing your income tax return for the income year in which you sold the house.

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

 

[sandyfeet]

Thanks for all your comments guys,

Terry, in the example above, both periods that the property was tenanted were less than 6 years. If, for example, the first period was 7 years and the owner moves back in, does this also reset the PPOR status allowing another 6 year period should the owner move out and tenant the property?

Thanks,

 

[Paul@PFI]

I sought accountant's advice on that same situation and was told the exemption is 6 years maximum per property - so once you came back and living there it will be CGT exempt when you are selling, but if you moved out again there will be no further 6 years period. If you were renting it out for 5 years originally then it will have 1 more year exempt.

Yet another stupid accountant who doesn't work in property taxes. I always take the view that if the client misunderstands the accountant isn't worth their salt.

 

[Paul@PFI]

Thanks for all your comments guys,

Terry, in the example above, both periods that the property was tenanted were less than 6 years. If, for example, the first period was 7 years and the owner moves back in, does this also reset the PPOR status allowing another 6 year period should the owner move out and tenant the property?

Thanks,

Yes.
Very common for diplomats. OSeas postings are often two years with 6-12 month periods in Canberra in between. They buy in Canberra and they enjoy this benefit.

 

[Terry_w]

Thanks for all your comments guys,

Terry, in the example above, both periods that the property was tenanted were less than 6 years. If, for example, the first period was 7 years and the owner moves back in, does this also reset the PPOR status allowing another 6 year period should the owner move out and tenant the property?

Thanks,

Yes, the second period could be exempt, but the first period would only be partially exempt.

 

[sandyfeet]

Oh god! Partial exemptions?? A new concept for me

So: if the property was tenanted for say, 7 years (or any period greater than 6) there will be some CGT payable upon sale but the amount of CGT payable will be dependent upon the time that it was tenanted after the 6 year period expired? Separate to this, if I was to move back in after 7 years (or even 10) this would completely reset the PPOR status for CGT purposes?

Thanks again guys,