The six year rule

[bumbles]

Hi all

I'm a potential first time property investor looking to get some clarification on the six year rule.

Essentially, my question is this:

What is considered by the ATO as a good reason to move out of your PPOR and rent it out? The ATO give an example -

Moving from your main residence could be for reasons such as:

- accepting a new job interstate or overseas
- staying with a sick relative long term, or
- going on an extended holiday.


What I'm looking to do is access the money in my FHSA and also the FHOG to buy and IP. The loose strategy is to buy in the outer Sydney suburbs, live in it for 6 months and then move back into the CBD. I'm hoping that moving into the city to shorten my commute will meet the ATO's "Good reason" criteria so that I have an IP that is CGT exempt for 6 years.

Does anyone have any relevant experience with this section of tax law?


Thanks guys.

Sources:

http://www.ato.gov.au/corporate/content.aspx?doc=/content/86191.htm

http://www.ato.gov.au/individuals/content.aspx?doc=/content/00096849.htm

 

[vaughan]

I'd guess that you'll have to make the new house your PPOR, which means you CGT exemption for your current house will end.

Unless you rent in the CBD...

 

[Asheam]

Hi Bumbles

To be honest the reason you move out is not a deciding factor. The CGT exemption will only be forfeited if you stay out of the house for over 6 year or you CHOOSE to nominate another house as your new PPOR.

If you did own a new house closer to the city you could choose for either the new house or your old house to remain as your ppor.

Cheers

 

[bumbles]

Thanks guys. I should have clearly stated that this investment property will be designated as my PPOR.

I don't believe that not living there for over 6 years forfeits the entire exemption, it's just that the exemption only applies to the 6 year period and the portion of ownership over the 6 years will not be CGT exempt.

My interpretation of the ATOs wording is that in order to claim the house as your PPOR you must have a good reason to move elsewhere (i.e you reason can't be solely that you want an IP). So if I'm right, this brings me back to the question of what you can get away with as a good reason?

 

[Terry_w]

Thanks guys. I should have clearly stated that this investment property will be designated as my PPOR.

I don't believe that not living there for over 6 years forfeits the entire exemption, it's just that the exemption only applies to the 6 year period and the portion of ownership over the 6 years will not be CGT exempt.

My interpretation of the ATOs wording is that in order to claim the house as your PPOR you must have a good reason to move elsewhere (i.e you reason can't be solely that you want an IP). So if I'm right, this brings me back to the question of what you can get away with as a good reason?

The ATO is only providing a guide. You should look at the actual legislation.

s 118-145 Income Tax Assessment Act 1997
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html

 

[missgreeneyes]

check with your accountant.
An accountant (she's a CA AND a CPA) told me that it is CGT exempt if you live in it 6 months out of every 6 years.

 

[Legs]

I believe the reason can be anything remotely reasonable. After all, whose goping to decide on it? We moved because the house was too small. We thought we could live in it but it was small, cold and bloody windy. It is now our IP. Accountant thinks this is perfectly reasonable.

 

[Terry_w]

check with your accountant.
An accountant (she's a CA AND a CPA) told me that it is CGT exempt if you live in it 6 months out of every 6 years.

This could be true in some circumstances, but not all.

There is also no requirement to live there 6 months. The legislation doesn't specify any minimum period so theoretically 1 day would be enough as long as you could reasonably argue that it was your main residence during this period.