Navigating CGT while living in multiple residences

13/02/2012


Question: We’ve turned our principal place of residence (PPOR) into an investment property in order to move to a rental property that’s closer to work. It’s tenanted, and all is going well, so I don’t see us selling the property anytime soon.

It’s my understanding that we can sell this property within six years of starting to rent it out, and still benefit from its capital gains tax (CGT) exemption, as our PPOR. My question therefore is this: if we decide not to sell, and move back into the property instead to preserve its status as our PPOR, how soon after moving back in can we sell without having to pay CGT?

I’m guessing, for example, that we can’t move back in just before the six years expires, stay there for a few months while it (hopefully) increases in value by a few more thousand dollars, and then sell up without incurring CGT. Or can we?

Is it also possible to stay there for a certain amount of time before turning it over to the rental market again without there being CGT implications, or can you only rent your PPOR out for a maximum of six years if you want to sell it CGT free?

Answer: Under Australian tax law, a main residence (or PPOR) is a place where you and your family normally reside and use primarily for private or domestic purposes. If you’re absent from your main residence (for instance, because you need to be closer to work), under the ‘temporary absent rule’ your home can continue to be treated as your main residence while you’re away. In the meantime, if you buy another home, you can’t treat that one as your main residence as well (as you cannot own more than one main residence). If you lease your main residence while you’re away, your home will continue to be exempt from CGT for a maximum period of six years. 

If you want this exemption period to continue beyond the six year limit, you need to reoccupy your home again before the six year limit is up. There is no set time you must remain in the property before you can leave again or sell it. However, it’s best that you stay for a reasonable period of time (for instance, three months). If you decide to leave and lease your main residence again, your home will continue to be exempt from CGT for a further maximum period of six years. Incidentally, if you don’t lease your home while you’re away, your main residence is exempt from CGT for an indefinite period. 

  • Answer provided by Jimmy B Prince, Independent tax expert

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Comments
  • Li says on 14/02/2012 05:55:28 PM

    Hi, I just had a following up question. If I have a PPOR and now I'm married and live with my husband who has his own PPOR. Is it still possible to treat my PPOR as PPOR indefinitely, if my mum moves in and I'm not leasing it to her. Or put more simply as far as the ATO is concerned my PPOR is not been leased, my concern is would they believe it to be true?

    As logically most people would not have the place empty, or would the ATO believe you are not collecting rent from the person leaving there?

  • YIP says on 15/02/2012 08:34:10 AM

    Thanks for your question Li. If you'd like to email your question to editor@yipmag.com.au, the team can take a look at passing it on to one of our tax experts to find an answer for you.

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