24 Apr Tax Q&A: Residential Property Rentals
Q: I bought a property as my permanent residence in 2000, lived in it for six years, then moved north for work and rented the property out. I have moved in and out of the property a couple of times, most recently moving back in a year ago. I was thinking of selling; however, the last time it was rented out was seven years ago, which exceeds the six-year main residence exemption time frame. Is there a period in which I can move back into the property to now make it my main residence and avoid paying CGT?
A: If you start using your main residence to produce income after 20 August 1996, you are normally taken to have acquired it (for CGT purposes) at the time you first used it for this purpose.
When you sell the dwelling, you must work out the capital gain using its market value at the time you first used it to produce income. This rule applies if you acquired the dwelling on or after 20 September 1985 and you fi rst used the dwelling to produce income after 20 August 1996.
Based on the facts you have supplied, we can summarise as follows:
1. The property was purchased in 2000 and it’s assumed you moved in as soon as practicable.
2. You moved out in 2006 and rented the property out.
3. Between 2006 and 2009, you moved in and out of the property, and rented it out in between.
4. Your final move-out date was in 2009.
5. Between 2009 and 2016, various tenants lived in the property. The rental period was seven-plus years.
6. You moved back into the property in 2016.
7. You’re still living in the property but looking at selling.
“To determine the actual tax exposure, you will need to use specific dates”
As the property was purchased after 20 September 1985 and has been used to produce income, there is no ability to have the whole capital gain exempt from CGT.
To determine the actual tax exposure, you will need to use specific dates for the above, so the example given below is indicative:
As Clinton rented out the dwelling, he can only treat it as his main residence during his absence for a maximum of six years; that is, for the period 2009 to 2015. As he moved in and out between 2006 and 2009, the actual number of days and dates will need to be identified, as the six-year rule resets every time occupancy recommences.
Clinton must treat the dwelling as having been acquired when it first became income-producing (ie in 2006), at the market value on that specific date.
Clinton can work out his assessable capital gain considering the total capital gains multiplied by the proportion of days’ non-main residence compared to total days owned. His non-main residence days include the days during which he was able to claim his absence under the six-year rule.
For instance, if the total non-main residence period was 2006–2018 (around 13 years, or 4,750 days) and the non-residence days were 500 days, then the gain would be calculated based on 500/4,750 of the gain between 2006 and the date of sale.
As the property has been owned for more than 12 months, the 50% CGT discount applies.
Director of Metropole
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