I understand from http://www.ato.gov.au/corporate/content.asp?doc=/content/86191.htm that a person can move out of their home for up to six years and still have it considered to be their main residence, as long as they return within six years.. In this time you are able to claim all the deductions of a rental property (interest, land rates, repair costs etc) and not have to pay CGT when you sell the home.
On the other hand, I have read that if you rent out a room/rooms in your home to a boarder while still living in your house, you will have to pay CGT on the portion of the house used to produce an income and for the portion of time that it was rented out.
Why are these situations treated differently? It seems that you are better off moving out of your home for a while because you get the CGT exemption. Are my assumptions correct?
Thanks for your help,
Daniel
Daniel,
In some circumstances – yes – it may be better for people to move out of their PPOR for a period of time and rent due to the additional tax benefits.
However in reality there are a lot more reasons and complications not to do it (finding tenants, being a tenant again yourself, is the property you are renting as good as your PPOR etc). If you don't believe me try explaining it to your wife or partner. I did this and got a very definite "NO" – even after I proved the tax benefit was over $100 per week!
Moving along…..
The majority of situations when people have a boarded are 'private and domestic' in nature – meaning people don't seek to claim tax deductions and will not be liable for CGT on that portion of their PPOR when they sell.
It is also important to note the the 'CGT exemption' only applies when you do not purchase another property and claim that as your primary residence.
Does that answer your question?
Good luck!
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Hi Kris,
that is a great answer, thanks. I am not going to buy another property. I was thinking of boarding with my folks or renting somewhere closer to work so that I can cycle to work while my car is out of order. Finding tenants isn’t too hard as my friend has already expressed interest.
I am able to collect my mail from my PPOR once a week. Having said that, is it advisable to redirect my mail to wherever I end up renting?
Thanks once again.
Dan
wafti123 wrote:Hi Kris, that is a great answer, thanks. I am not going to buy another property. I was thinking of boarding with my folks or renting somewhere closer to work so that I can cycle to work while my car is out of order. Finding tenants isn't too hard as my friend has already expressed interest. I am able to collect my mail from my PPOR once a week. Having said that, is it advisable to redirect my mail to wherever I end up renting? Thanks once again. DanHi Dan,
You don't have to have the mail at your PPOR to still claim it as your PPOR for CGT purposes. So I would suggest re-directing the mail, as it would be much easier having the mail sent to wherever you are living.
Having mail to your PPOR is advisible when you are establishing a residence as your main residence. As you have already done this, you can redirect the mail without worrying about it effecting the main residence exemption for CGT.
I hope this makes sense, I have rambled a bit here!
wafti123 wrote:Why are these situations treated differently?The 6 year rule is only applicable when you are absent from your residence if you are just renting a few rooms out you are not absent so can't claim the exemption
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Thanks guys,
I was wondering that if you don’t change your mailing address, how can you prove to the ATO that you were absent from your PPOR. It seems that there is nothing stopping someone from saying that they moved out for a short time to claim the CGT exemption while actually living in their PPOR.
Dan
wafti123 wrote:Thanks guys, I was wondering that if you don't change your mailing address, how can you prove to the ATO that you were absent from your PPOR. It seems that there is nothing stopping someone from saying that they moved out for a short time to claim the CGT exemption while actually living in their PPOR. DanFor this it wouldn't really matter if you lived there and pretended you were absent as you would be be charged CGT anyway.
TD 51 outlines the definition of principle residence and lists the things that would be taken into consideration
http://law.ato.gov.au/atolaw/view.htm?locid=cgd/td51/nat/atoTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
wafti123 wrote:Thanks guys, I was wondering that if you don't change your mailing address, how can you prove to the ATO that you were absent from your PPOR. It seems that there is nothing stopping someone from saying that they moved out for a short time to claim the CGT exemption while actually living in their PPOR. DanDo you mean if you are renting out rooms?
If your PPOR is producing rental income, then you need to have moved out, so you would need to change your mailing address.
Generally, if you have people boarding with you in your house, the income is not declared, and the expenses are not claimed. Boarding income is not generally considered rental income, so it has no effect on the main residence rules.
If you want to declare theincome and expenses, then yes, you would need to move out and change your address. The onus is on you to prove that you have moved out, by changing your mailing address, your drivers license, electoral roll etc etc.
Thanks,
that answers my questions
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