Most helpful replyATO Certified Response
Author: PollyATO(Community Support)Community Support ATO Certified Response17 Sept 2024
Hiya @Shiningstar,
Sorry it's taken so long but our tech team have come back with a response. Check it out!
A property usually stops being your main residence (and exempt from capital gains tax (CGT)) when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence for up to 6 years after you start using it to earn rental income.
As you have used property A as an investment property for part of the time you owned it and that period exceeds 6 years from when you started renting it, you will need to declare a portion of the capital gain or loss you make when you sell it.
First, you will need to calculate your capital gain or loss for property A using the capital proceeds and your cost base for property A (the market value of property A at the time you first used it for rental plus any other costs you can include in the cost base). Secondly, you will need to use the following formula to calculate the portion of the capital gain or loss you need to include in your tax return:
Capital gain or capital loss amount x (non-main residence days ÷ days in your total ownership period)
This is roughly what you have suggested but as you have noted, you will have to use the number of days in each of those periods rather than years.
You can choose which property you live in when you return to Australia. If you choose to live in Property B, it can be treated as your main residence from the date you move into the property.
As with property A, you will only be entitled to a partial main residence exemption when you sell property B because you have used it to earn rental income. The steps and formula above would be used but, the cost base of property B will be the purchase price (not market value) plus any costs you can include in the cost base.
The cost base of an asset includes any capital costs to increase or preserve the value of the asset so the cost of a renovation to property B could be included in its cost base. However, if you earn rental income from property B at any time after the renovation and you claim a capital works deduction for those renovation costs, you will need to adjust your cost base and exclude any capital works deductions you have already claimed.
As you were a foreign resident during part of the ownership period, you will have to pro-rata the CGT discount for the number of days you were an Australian resident after 8 May 2012. Our CGT discount worksheet will help you work out your CGT discount percentage.
Hi @PollyATO
Appreciate your reply above.
I am contemplating another option after returning to Australia in 2025 (becoming a tax residence), in which I will stay in property A for 9 months to 1 year, during which period I will re-establish property A as my main residence. My understanding is that after staying for a period of time, thereafter, I can rent out property A again for multiple times according to the '6-years-rule'. Is this correct? Is there a define period of time to reset '6-years rule'?
The CGT calculation upon my final selling property A would be:
total capital gain amount x (non-main residence days ÷ days in your total ownership period), in which,
total capital gain = selling price - market value when it first becoming rental property @ 2014.
Non-main residence days = 2014 (first rent out day) to 2025 (move back day). Any renting period that less than 6 years after the property A is re-established as main residence will not be part of the non-main residence days calculation above, is that correct?
The other question is while I rent out my property A again after 2026, while keep it as my main residence, would there be any implication if I move into property B (purchased in 2011 for investment purposes)?
To sum up, after staying in property A between 6-12 months to re-establish PPOR status, I will move out and stay in property B. Meanwhile, keep renting out property A for another 6 years.
Thank you!
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