Thursday, 5 September 2013 10:36:48 PM
OP, you need to consider that capital gains tax is payable on the portion of time your investment property was income producing. The "6 year PPR full exemption" on CGT applies only if you lived in the property for at least six months after purchase and you have no other PPR. For the period of 6 years after you move out this falls under the main residence full exemption.
In majority of cases (and your case in particular), people may be entitled to a partial exemption if they decide to live in the property for a period of time. This may be the case, for example, if you were to move into the property for a few months and renovate before selling. Essentially, the capital gain you incur will be apportioned based on the number of days that the property was used for income producing activities divided by the total number of days the property is owned.
Here's an practical example:
Let's say your investment property was purchased for $350,000 plus $12,500 of capital costs, such as Stamp Duty, legal fees, etc.
You purchase your property on 1 July 2010 and sell it on 30 June 2013 for $475,000 less $5000 of costs, eg legal fees, etc.
Your gross capital gain will be $107,500. Now, lets assume you lived in the property for 6 months from 1 January 2013-30 June 2013, say 182 days. The total days owned was 1,087 and the number of days it was income producing was 905 (1,087-182).
So $107,500 x 905/1087 = $89,500 Gross gain.
You can then apply the CGT 50% discount for a net gain on disposal of $44,750 taxable income. If the property was OWNED jointly, then it would be 50% of that, ie $22,375, in your individual tax returns taxed at your marginal rates.
If you had no other taxable income, then roughly you would pay $832 each in tax on the sale of the property. Had you not bothered to live in the property this figure would be $999 each in tax.
If its necessary to live in the property then do it - but always be mindful that by changing your main residence to the investment property for that period then opens your own home up to CGT consequences! Which in most cases this would be a much bigger investment! Often it's not worth it to save a few bucks when you consider the time value of money.
Always seek tax advice, and good tax advice at that - please be mindful that some of the comments above are nonsense and that there is no such thing (legally) as "tax avoidance" - only "tax minimization". I would only suggest a good Chartered Accountant to provide you with advice on these matters such as the most tax effective way to sell your property, and be mindful to seek professional advice whenever you are making large investment decisions in the future.
Hope this helps!