Tax Q&A: Does 6-yr rule apply for a transfer (not sale)

By Contributor | 06 Jun 2019

Question: My question is regarding whether I would still be exempt from capital gains tax if I transferred my primary residence to a family member.

I purchased the property from my sister back in 2011, and I lived in it until mid-2013. I moved out to rent elsewhere, and I now plan to transfer the property to my brother. So I was wondering if the six-year rule applies in a situation where it is just a transfer and not a sale.

I purchased the property for about $180,000, and I think it is worth about $340,000 now.

Thanks, Billy

Answer: I wish I had a brother like you, Billy! That’s a really nice thing to do. Nonetheless, the circumstances are a little bizarre, because in this situation you basically gave your sister $180,000 in 2011 and now you are effectively giving your brother $340,000. Ideally, your sister could have given the property straight to your brother and you would have been $180,000 better off. In addition, stamp duty would have been paid only once, instead of having to be paid twice. 

To answer your question, in my opinion, yes, the six-year rule with respect to capital gains tax exemption for main residences would still apply. 

The six-year rule enables you to treat a dwelling as your main residence for a period of up to six years, even if you no longer live in it. The rule applies in this case because the Australian Tax Office treats the transfer of a property, for example to a family member, in the exact same way as it does a sale, despite the fact that no money is changing hands. The ATO will deem the transfer of your property to your brother to be at market rates; that is, at $340,000 rather than $180,000.

Furthermore, because you rented another property during your time away, as opposed to purchasing another property, the home in question remains your main residence. 

As a result, you would still be entitled to the six-year tax exemption for principal places of residence, since you never declared another property to be your main residence. 

In your specific case, I would suggest that you get a valuation done by a professional valuer at the time of the transfer. This would assist your brother if he ever needed to pay capital gains tax in the future – in which case his his cost base would be established at the highest possible value. Presumably, the value set by the valuer will be higher than the amount shown as the council valuation.

Bear in mind, however, that your brother will still need to pay stamp duty on the transfer at market rates. Alternatively, if you leave the property to him in your will, then you could avoid having him pay stamp duty on the transfer, which would be a better result for him. 

The rules, however, may differ if you are transferring a property to a former partner in the event of a relationship breakdown, or to the trustee of a special disability trust.

Need to know
-The ATO treats property transfers like sales, where capital gains tax is concerned
-The transfer of a property to another family member is deemed by the ATO to be at market value
-Professional property valuations are usually higher than council valuations

Kym Nitschke
is managing partner at
Nitschke Nancarrow Chartered Accountants



Have you got tax queries regarding your property investments and wealth creation strategies? Our experts are on hand to answer them.
If you would like your tax question answered in our magazine or on our website, please email your question to:

Top Suburbs : mt colah , balga , menai , penrith , melton


Get help with your investment property

Do you need help finding the right loan for your investment?

When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.

Just fill in a few details below and we'll then arrange for a local mortgage broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus an appointment is free.

How soon would you like a mortgage?
What is your Annual Household Income i $
Do you currently own any Investment Properties?
Do you own your own residence?
How much equity do you have in all your current properties?
First Name
Last Name
Where do you live?
What number can we reach you on?
E-mail address
We value your privacy and treat all your information seriously - you can check out our privacy policy here