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Main Residence Exemption - six month rule

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Newbie

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Hi,

My situation as followed:

I have two properties during financial year 2018. The old property (Property 1) sold on September 2017 and settled on October 2017. Before settlement, I rented it out for 2 months during August and September. During the two months period of renting the property 1, I moved to live in new property (Property 2) which was purchased on August 2016 and settled on December 2016. My question as followed: 

 

1. Can I get six month rule exemption for property 1 and property 2 if I choose Property 1 as main residence? My concern is that one of the requirement to get the exemption is that your old property (Property 1) cannot use for income-producing purpose. I am not quite clear regarding this condition.

 

2. So if the six month rule not applied, can I get a full main residence exemption for Property 1 under six- year absent rule ? And if I sell the Property 2 in the future, which period I cannot get the main residence exemption?

 

Thank you

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Hi @rachelung01,

 

Thanks for your questions!

 

We can provide general information here on our Community and we'd need to know more information about your situation to be able to provide a definite answer.

 

Generally speaking, your main residence is exempt from CGT if it hasn't been rented or used to run a business. You choose which property is considered your main residence; however you can only have one main residence at a time. You can find more information about CGT, your home and other real estate on our website.

 

If you'd like to receive a more detailed response relating to your situation you can write to us to request a private ruling. Private rulings are binding advice from us that explains our view on how the tax law applies to your specific situation. They are free services and we aim to respond within 28 days from receiving your request. Your accountant can also use the information provided in the private ruling to lodge your tax return.

 

Thanks, JodieH.

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Taxicorn

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(1) Under the six month rule the ATO allows you to hold two primary places of residence. An exemption from CGT is available if a new home is acquired before a purchaser disposes of the old one. In this instance both dwellings are treated as the primary place of residence for up to six months if:

  • The old property was the owner’s primary place of residence for a continuous period of at least three months in the twelve months before it is sold
  • The owner did not use the old property to provide an assessable income in any part of the twelve months when it was not the primary place of residence
  • The new property becomes the owner’s primary place of residence

If you dispose of the old dwelling within six months of acquiring the new one, both dwellings are exempt for the whole period between when you acquire the new one and dispose of the old one.

 

So basically you can't apply the 6 month rule.

 

(2) You can't use the 6 year absence rule because you owned another property. It is only available if you were renting another place etc.

 

 

You will have to decide which house is your principal Place of Residence and for what periods:

 

Property 1: Date of Contratct to own until Date of Contract to sell. Which will expose 2 months of CGT for Renting.

 

 

This will then mean that Property 2 won't be your PPR until Date of Contract to sell Property 1, so you will have CGT on Property 2 from Date of contract to buy Property 2 until date of contract to sell Property 1.

 

Or You can claim Property 2 as your PPR from the date of contract to buy, which then means that Property 1 will attract CGT from Date of Contract to buy Property 2 until date of contract to sell property 1.

 

It can get very confusing, best to speak to a Tax Professional.

 

Basically you can't have 2 PPR at the same time, so you decide which one based on minimum CGT.

 

 

 

 

 

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Hi @rachelung01,

 

Thanks for your questions!

 

We can provide general information here on our Community and we'd need to know more information about your situation to be able to provide a definite answer.

 

Generally speaking, your main residence is exempt from CGT if it hasn't been rented or used to run a business. You choose which property is considered your main residence; however you can only have one main residence at a time. You can find more information about CGT, your home and other real estate on our website.

 

If you'd like to receive a more detailed response relating to your situation you can write to us to request a private ruling. Private rulings are binding advice from us that explains our view on how the tax law applies to your specific situation. They are free services and we aim to respond within 28 days from receiving your request. Your accountant can also use the information provided in the private ruling to lodge your tax return.

 

Thanks, JodieH.