Just a question to those who know about the 6 year rental rule on PPoR.
My understanding is that you can rent out your PPoR for up to 6 years before becoming liable to pay CGT upon sale.
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. – http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html
In any example I’ve been able to find, it’s normally because you’ve been forced to move (normally due to work) that you can rent out a place and still claim it as main residence.
My question is could you buy a house as a PPoR (live in it for however long it takes to qualify you for main residence) and then find a place to Rent while also renting out your PPoR.
Example: I buy a PPoR 15mins from the CBD and live in it for a year. After the year I move into the CBD and Rent an Apartment. Can I rent out my PPoR for ~6 years and still be CGT free?
Hi
I think the short answer is YES.
Regards, Sanjiv“There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.†– Nelson Mandela
We have been discussing this very issue over recent days in other threads.
I am living in L.A at present, we are renting our PPoR, and intend to do so for a few more years yet, so I am in this position exactly at the moment.
I placed a call to my accountant last night to get clarification, and both TerryW and I posted an answer, but I’m happy to do it again.
The bottom line is you CAN move out of your PPoR, rent it for up to 6 years and NOT be liable for cgt.
I don’t know the situation when if you move back in for a year, then move out again for a time, which would take you over the 6 years of rental; I think you then are liable for cgt and it is pro-rata.I would be surprised if the reason why you move out would matter – whether you do it for a straight forward financial decision, or whether you are forced out due to work shouldn’t matter I suspect.
Check this one with your accountant.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I think CJ’s example would be fine – but check with your accoutant. As far as I know the six year rule starts again ocne you have moved in. So you could rent it out for 5 years, move in for a short period, and move out and rent it for another 5.9 years and just keep on doing this. As long as you are not abscent for mor than 6 years in a row, then it should be CGT free.
Terryw
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Thanks for your patience and answer LA. I tried to search through the threads but the search never loaded.
I’ll double check with my Accountant, though I’m pretty sure that TerryW is correct when he states you can move in after 5 years and continue to rent it out afterwards for 5.9years
A little thing in your example LA is that you’re no longer living in Australia (unless the L.A stands for someplace in AU that I dont’ know of lol)… To take my example to the extreme, could I live (renting) next door to my PPoR while it’s rented out?
Absolutely. I know of 2 guys who both bought identical apartments in the same building, then moved into each other’s apartments and rented from each other and were able to claim all the expenses etc. Good one!
By the way; there is absolutely no where in Aus that is like L.A (thank god).
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
hmmm. I wonder than as a first I.P if it would be viable to purchase it as a PPoR and “convert” it to an IP for 6 year intervals?
Especially at the beginning of your investment career when you will be dealing with 1 or 2 properties, why not use this as a failsafe in case/when you choose to sell your first property.
Of course this is on the assumption that upon “converting” a PPoR to an IP, results in having any expenses on your PPoR tax deductible. Other than being unable to claim purchase costs, would’nt the Interest far outweigh that?
I’m sorry I don’t know how to word my questions properly, I’m still trying to figure it all out.
Hello CJ
If I were starting out that’s what I would do. Buy a property as my PPOR. Get the FHOG and live in it for the time required while renovating it. After that I would move out and rent.
While I think you are probably right in thinking that the buying costs would not be tax deductible after the property becomes an IP, don’t forget that the biggest buying cost is stamp duty. Depending on which state you’re in you may pay little/no stamp duty as a first home buyer. Even if this is not so, stamp duty is not tax deductible but is added to your cost base for calculating CG. something that you will not need to do.
Alll other expenses including interest will be tax deductible while it’s an IP. Depending on the age of the property and specially if you renovate you will be able to claim depreciation as well.
Hope this helps[smiling]
ElkaHi Guys,
Well it has been a few years since I practiced in Tax Accounting but I do recall the 6 year exemption rule that applies to your PPOR as outlined above. I also thought that a taxpayer was required to make an election in his/her tax return about the exemption so please call you Accountant to verify.
AmandaBS
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FREE online Property Resources“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”
Originally posted by AmandaBS:Hi Guys,
Well it has been a few years since I practiced in Tax Accounting but I do recall the 6 year exemption rule that applies to your PPOR as outlined above. I also thought that a taxpayer was required to make an election in his/her tax return about the exemption so please call you Accountant to verify.
I was running into problems with that when discussing with a mate of mine. I remember reading an example saying that you would only have to Elect your PPoR upon sale of the property, but his argument was that for Tax purposes during ownership you would have to elect it yearly (which makes sense)
So yeah, renting out a PPoR for 5 years as an IP, for Tax Purposes one would have to assume that you would declare the property as an IP. However upon sale you would then elect it as a PPoR contradicting your previous statements… I dunno! lol, I suppose that’s why I’m asking
Originally posted by L.A Aussie:Absolutely. I know of 2 guys who both bought identical apartments in the same building, then moved into each other’s apartments and rented from each other and were able to claim all the expenses etc. Good one!
By the way; there is absolutely no where in Aus that is like L.A (thank god).
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
and then lost their CGT exemptions. Be smarter if they established each place as a PPOR first.
If the ATO looked into it I wonder how they could show that they didn’t do this just for tax avoidance reasons?
I am not sure about any annual elections – my accountant does my tax for me. It is my understanding that it is just done after the sale of the property when calculating any CGT owing.
Simon Macks
Residential and Commercial Finance Broker
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Alll other expenses including interest will be tax deductible while it’s an IP. Depending on the age of the property and specially if you renovate you will be able to claim depreciation as well.Hope this helps[smiling]
ElkaHi guys,
Just want to confirm that once the property is converted to an IP and you are claiming interest and other expenses as a tax deduction, whether that precludes you from applying the six year rule when on-selling the property.
In my situation, I purchased a property as my PPoR, read Steve Mcknight’s 1st book, converted it into a cashflow positive IP property, refinanced it (interest only) in order to purchase another IP, read Steve’s latest book, reassessed my portfolio, and now I want to realise the capital gain in the 1st property to pay down some debt in other properties. I am wondering if I can apply the six year rule to the first property. I have not nonminated another PPoR since moving out of it but I have been claiming all expenses on the property as a tax deduction. I have researched the forums and the ATO website, and although I seem to meet the criteria of the six year rule, no-one seems to talk about what the situation is if you refinance and claim expenses.
Anyone have any thoughts?
Thanks!
Originally posted by jayco:Alll other expenses including interest will be tax deductible while it’s an IP. Depending on the age of the property and specially if you renovate you will be able to claim depreciation as well.Hope this helps[smiling]
ElkaHi guys,
Just want to confirm that once the property is converted to an IP and you are claiming interest and other expenses as a tax deduction, whether that precludes you from applying the six year rule when on-selling the property.
In my situation, I purchased a property as my PPoR, read Steve Mcknight’s 1st book, converted it into a cashflow positive IP property, refinanced it (interest only) in order to purchase another IP, read Steve’s latest book, reassessed my portfolio, and now I want to realise the capital gain in the 1st property to pay down some debt in other properties. I am wondering if I can apply the six year rule to the first property. I have not nonminated another PPoR since moving out of it but I have been claiming all expenses on the property as a tax deduction. I have researched the forums and the ATO website, and although I seem to meet the criteria of the six year rule, no-one seems to talk about what the situation is if you refinance and claim expenses.
Anyone have any thoughts?
Thanks!
Refinancing has no relation on the 6 year rule – nor does claiming expenses.
The only thing that will prevent it is if you own another home.
They can overlap by 6 months if you are selling one but you cannot claim two PPORS otherwise.
So if you own a home and then rent it for 6 years and move back in then no CGT is payable – regardless of refinancing, tax deductions etc
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Sorry to dredge up an old thread, and I know that it has been answered before but I can’t find that thread, but how long (in QLD) do you have to live in the home for it to be PPoR labelable
Do a search on the ATO site under legal, and look for a tax ruling on main residence definition. I think you will find it lists the factors which determine whether a place is your main residence and this includes a number of factors. Time is not necessarily an issue.
Terryw
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I couldn’t find it at the ATO site, but I did find this from the FHOG site.
How long must I reside in the property for it to be my principal place of residence?
* If you have entered into an eligible transaction prior to 1 January 2004, there is no minimum period that you are required to live in the property to maintain your grant eligibility. However, the onus is on the applicant to prove that they have lived in the property as their principal place of residence, if requested by the Office of State Revenue.
* If you have entered into an eligible transaction on or after 1 January 2004, you must remain in continuous occupation for a period of at least six months.Hi CJ
FHOG is administered by the States. The ATO may have different criteria.
see
TD 51
Capital Gains: What factors are taken into account in determining whether or not a dwelling is a taxpayer’s sole or principal residence?
http://law.ato.gov.au/atolaw/view.htm?locid='CGD/TD51/NAT/ATO‘Terryw
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Hi Guys
A very interesting thread for myself, as we type i have my Finacial records in with the accountant, and find myself in this exact position.
The information on this thread and previous threads on this subject alerted myself that i may not have to pay CGT on one of my propertries, resulting in a saving of $30,000. I asked my accountant, who claimed that they would have to resaerch the subject, made me a little nervous, as i would expected that they deal with this issue reguarly.
The only thing that will prevent it is if you own another home.
Simon, are you talking about another PPOR or any home, such as another IP?They can overlap by 6 months if you are selling one but you cannot claim two PPORS otherwise.
Simon do you need to move back in to your PPOR prior to selling? My situation is, bought PPOR in 2000, lived in it until 2002, then moved in to company supplied accomodation and rented out PPOR as IP.We quit our jobs in July 05 and moved into our new PPOR, which was an IP prior, and placed original PPOR on market, which sold in Dec05. Would my situation, fit this criteria? I hope i have not confused everybody.
Regards
Wayne
“What is the lap record, and which way do i go?”
Wayne
Look at the link to the actual legislation, it has an example there too.
It sounds like you may be exempt from CGT, on your former PPOR. There was a period when you had two PPORs from July to Dec 05, but this should be ok as the 6 month overlap rule could apply.
I would have thought your accountant would know this stuff.
Terryw
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Hi Terry,
I would have thought your accountant would know this stuff.
Exactly, the very thought that he could not tell me straight of the bat has got me now a little worried, i have just changed thid year from an accountant that i had been using over the last 10 years.Just checking the thoughts of some of you property gurus, should the accountant come back with a “No”, before i go in to battle.
Thanks
Wayne
“What is the lap record, and which way do i go?”
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