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Re: 6 Year Rule

Enthusiast

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Replies 4

HI ATO Community,

Example: 

 

I currenly own a property that I bought in 13/12/1999 for $220,000. I lived in it from 13/12/1999 until 12/12/2013.

I rented it out from 13/12/2013 to 13/5/2020. 

I sold the property on 14/5/2020 for $1,000,000

I did not move back in before I sold the property.

 

How does the CGT event apply to my 2019-2020 tax return???

1) Can I apply the 6 year rule from 13/12/2013 to 13/12/2019 ? I think I can since I lived in it since i first bought it, i did not treat any other property as my PPOR.

 

2) Does this mean my CGT liable period is only from 14/12/2019 to 13/5/2020 (151 days) / 13/12/2013 to 13/12/2019 (2343 days) = 6.44%? (Using the market value on 13/12/2013 as my cost base)

 

3) Or do I calculate it as 151 days (as above after applying the 6 year rule) over the whole ownership period (7457 days) = 2.02% ? 

(Using the original purchase price of $220,000 as my cost base)

 

4) What price should I use as my cost base? The original purchase price of $220,000 or the market value when I first rented out my property on 13/12/2013 ? I do not know the market value of my property on 13/12/2013. ATO website has examples of both so I am confused. 

 

Really need help on this. Thank you Smiley Happy

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ATO Community Support

Replies 3

Hi @TaxAddict,

 

I'll answer assuming you are a resident for tax purposes at the time of disposal.

 

You'll be able to use the main residence exemption for the time the property was your main residence. You can additionally use it for 6 years the property was used to produce income if you did not have another main residence at that time.

 

Your cost base begins from the time you start using the home to produce income. You are taken to have acquired the dwelling at its market value at that time. You can have a professional evaluator calculate this for you using historical data. This is your ownership period for CGT purposes.

 

This means your partial exemption calculation would be: total capital gain x (number of days in your ownership period when the dwelling was not your main residence ÷ total number of days in ownership period). For your example, this means $1m x (151 ÷ 2343).

 

You can read more about Treating a dwelling as your main residence after you move out and Calculating a partial exemption – main residence on our website.

4 REPLIES 4

Most helpful response

ATO Community Support

Replies 3

Hi @TaxAddict,

 

I'll answer assuming you are a resident for tax purposes at the time of disposal.

 

You'll be able to use the main residence exemption for the time the property was your main residence. You can additionally use it for 6 years the property was used to produce income if you did not have another main residence at that time.

 

Your cost base begins from the time you start using the home to produce income. You are taken to have acquired the dwelling at its market value at that time. You can have a professional evaluator calculate this for you using historical data. This is your ownership period for CGT purposes.

 

This means your partial exemption calculation would be: total capital gain x (number of days in your ownership period when the dwelling was not your main residence ÷ total number of days in ownership period). For your example, this means $1m x (151 ÷ 2343).

 

You can read more about Treating a dwelling as your main residence after you move out and Calculating a partial exemption – main residence on our website.

Enthusiast

Replies 2

Hi @BlakeATO ,

 

Thank you so much for the clarification, I now understand how to calculate my CGT through the market value method.

 

As you said, I am taken to acquire the property on the first day the property was rented out, which needs the market value.

 

But I was wondering is there a choice to use the actual cost base of $220,000 in 1999 to calculate my CGT, hence apportioning the CGT liable period (after 6 year rule applied) over the total ownership  period from 1999 to 2020. Assuming it might reduce the Capital gains tax.

 

I got this method/idea from the ATO website through Rami's example 8.

ATO Community Support

Replies 1

Hi @TaxAddict,

 

The website advises - If you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you stop living in it. If, as a result of you making this choice, the dwelling is fully exempt, the 'home first used to produce income' rule does not apply.

 

If you rent out the dwelling for more than six years, the ‘home first used to produce income’ rule may apply, which means you are taken to have acquired the dwelling at its market value at the time you first used it to produce income.

 

So Market value is established from the time you first started using it to produce income (13/12/2013). Thereafter you can work out your cost base and apply the partial exemption.

 

Links-

Market value.

Partial exemption.

Former dwelling used to produce income.

 

All the best.

Enthusiast

Replies 0

@Jodie_ATO Thank you