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The 6 year rule for Capital Gains Tax exemption

Wednesday, 4th Apr 2012
Categories: Finance, Newsletter

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It’s a common question asked by property investors. If someone decides to move out of their home, can they still claim it as their primary residence and therefore obtain the capital gains tax exemption? The answer is yes with some limitations.

The temporary absence rule states that where a dwelling ceases to be an individual’s main residence, the individual can choose to treat the dwelling as their main residence for all or part of the period they are not living in the property.

If the property is NOT used for income producing purposes after the person moves out, then the taxpayer can treat the dwelling as their main residence indefinitely. But if the dwelling IS used for income producing purposes (i.e. it is rented out) the dwelling can be treated as the person’s main residence for up to six years after they move out.

The good news is that if the property is rented for longer than six years in one continuous period, than the exemption still applies for the six years. It is not lost entirely. But you can only have one primary residence at a time. You cannot purchase another property and rent the old property out and claim both properties as your primary residence for capital gains purposes.

What happens if someone moves out of the property, rents it out then later moves back in, then later moves out again and rents the property? Does the 6 year rule apply to the total of the two periods?

No. The ATO has said in TD 95/9 that the six year rule applies to each period of absence. That means you can access the six year rule more than once for the same property. For the new six year period to start, you must move back into the property.

Momentum Wealth and its affiliated entities are not Accountants or Financial Planners. While all information is provided in good faith, you should seek your own independent advice in relation to all tax matters.