Base for calculation of capital gains of principal residence sold including 6 year rule

 Author: Taxduck(Taxicorn)Taxicorn

30 Nov 2023

For property that was first main residence then rented the only accepted method of calculating the cost base is the market value of the property when first earned rental income. You can't use either of the other 2 methods you mentioned. A valuation will need to be determined. See this link https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/market-valuation-of-assets

You have a couple of options when using the 6 year rule.

1. Consider the rental property your main residence up to the time you purchased your second property, then this second property will be main residence with no CGT implications.
2. Consider the rental property your main residence for full 6 years, then second property will have CGT implications from 2022 to 2024.

With either option the capital gain is calculated by deducting the value of the property in 2018 from the sale price (plus costs) then apportioning the time the property was not your main residence to determine the gain. This gain is discounted by 50%.

Note: You can only have one main residence at any one time.

You should seek professional advice in determining any gain as it is a fairly complex area. There are also tax planning measures that can reduce tax liabilities (e.g personal super contributions)