<img src="https://certify.alexametrics.com/atrk.gif?account=tIN/s1P8cT20VR" style="display:none" height="1" width="1" alt="">

The six-year capital gains tax rule explained

The six-year rule, in short, means you can own a property that you treat as your main residence for capital gains tax purposes even though you do not live in that property. If you are producing income from this property ie. earning rent from it you can treat that property as your main residence and be exempt of capital gains tax (CGT) for up to six years even though you are not living there.

If you do not sell the property within those six-years or reoccupy the property as your main residence within those six-years then the exemption no longer applies. During this six-year period, you cannot nominate another property as your main residence otherwise you will not be exempt from Capital Gains Tax.

Here are some examples of where the six-year rule applies and where it would not apply:

Property that was previously your principle place of residence (PPOR) earns no income

Nina and Dave bought their first home in Melbourne in 2009 to be there principle place of residence (PPOR) but in 2012 Nina was contracted to work in Sydney for two years. The couple decided to rent an apartment in Sydney while they left their Melbourne home full of their larger belongings and asked Nina’s sisters collect their mail every week. Nina’s work contract was extended in Sydney so Nina’s sister moved in their Melbourne house rent-free indefinitely.

7 years later Nina and Dave sold their house in Melbourne and were able to claim the main residence exemption from CTG as they were earning no income from the house and they did not nominate the apartment in Sydney as their PPOR

‘If you don't use your former dwelling to produce income you can treat it as your main residence for an unlimited period after you stop living in it.’ - Australian Taxation Office

Property that was previously your principle place of residence (PPOR) now earns income

Colin bought a one-bedroom studio apartment in Brisbane as his PPOR in 2010. In 2012 he met Alex and they decided they needed a bigger space so they started renting out the apartment while renting a larger home 15 minutes away. 4 years later they found the house of their dreams and decided to sell the apartment.

The two treated the apartment as their main residence for those 4 years and as the period of time they were not living in the main residence was less than 6 years they were exempt from CGT.

Property that was previously your principle place of residence (PPOR) went through periods of being rented out and living in by the owners

Cleo has lived in her townhouse she purchased two years ago but she was in need of sea change. Cleo decided to rent a home in a small seaside town for a year while she rented out her townhouse. After the year was up she moved back into her townhouse.

Two years went by again and it was time for another change of space. Cleo rented an apartment in a high-rise building for two years while again she rented out her townhouse. Cleo finally came back to her townhouse for good after the two years were up.

If Cleo was going to sell her townhouse which has been her main residence the whole time she would be exempt of CGT as each period that she was earning income from her townhouse and living in another place was less than 6 years.

 

If you are wondering what would happen to your property or are interested in knowing how renting might impact it. Feel free to ask and share us your comment. Cubbi is an online renting platform that allows you to rent out your property hassle free.