The six year rule


Question: Could you please clear up a question for me as two accountants have given me different answers. I built and lived in a house in Secret Harbour, Western Australia, from March 2006 until December 2007 (21 months). The house has been rented out since I moved to Queensland in 2007. I could probably sell the property for about $420,000 to $430,000. The house cost about $260,000, and all the increase in value pretty much happened in the first 12 months.

 In April 2009 I bought a townhouse in Cannonvale, Queensland, which cost me $285,000. This is now my principal residence, but my family has grown and we are looking for something bigger. I have been advised that if I sell my WA property within six years of completion that I won't have to pay any capital gains. This sounds too good to be true… is it?  If not, how can I minimise the expenses relating to selling the WA property?

 Answer: Under the capital gains tax (CGT) provisions your main residence is exempt from GCT. Under the temporary absent rule if you move out of your main residence (as you did in WA) and you lease out your property; it can still be exempt from CGT for up to six years while you’re away. But if you buy another property in the meantime (as you did in Queensland) and move into it, you need to make an election as to which one of the two properties is now your main residence. This is because you can’t own two main residences. If you elect the Queensland property is your main residence, your WA main residence exemption ceases from the date your Queensland property becomes your main residence. But if you elect your WA property to be your main residence, your Queensland property is liable to CGT between the date you bought the property and the date you sell your WA property. 

  • Answer provided by Jimmy B. Prince

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  • Irene says on 02/02/2012 01:44:06 PM

    How long does one have to reside in this property before putting it out for rental again??

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