The "6 year rule" and meaning of "move in as soon as practicable"

[#1]

Hello ATO Community,

I recently bought a house and settlement is next month (mid Feb). There are currently tenants in there who haven’t been given notice by the current owner, and I want to understand how to meet the eligibility for the "6 year rule”, specifically the term "move in as soon as practicable after settlement”.

Detail:

- There are currently tenants there on a month to month lease

- The current owners of the property would not issue them notice to vacate, so this will fall onto me after settlement

- Covid19 restrictions mean we have an eviction moratorium until 29 March 2021, unless I apply to VCAT for an exemption

- The property manager advises this  VCAT process will cost me $500 and take until mid-late March to get approved and allow for an eviction notice – ie a similar time frame to waiting to 29 March to issue the notice normally

- I am have no preference of when I move in, as long as I maintain eligiblility for the "6 year rule” 

Questions: 

1) I have no ability to evict tenants immediately upon settlement (there's always a 60 day notice period), so I assume this brief period of tenancy doesn't affect my eligibility, as I am still moving in "as soon as practicable after settlement”? Can anyone confirm?

2)  Whether I go through VCAT or wait until the eviction moratorium ends on 29 March, the property manager advises it’ll be a similar time frame for my *actual* move-in date. (I have this in writing from her). As I’d prefer to avoid the costs and headaches of VCAT, will me waiting six weeks until 29 March to issue the Notice affect my eligibility for the 6 year rule? 

I worry it may appear I am not moving in “as soon as practicable” if I wait until 29 March to issue the eviction notice, even though in practice, and as per my Property Manager, the timeline for my actual move in date will be basically identical.

Thank you all in advance!

[#2]

Hi @mrfuller,

Your main residence exemption cannot start until you move into the property.

If the property is being tenanted and was at the time of purchase, the exemption cannot apply - the main residence exemption is not retrospective, and the 6-year rule begins once you move out of the property.

This means the time prior to you moving in will be subject to CGT. Keep in mind, this will not impact you until you sell or dispose of the property!

For the time the property is your main residence, you'll be able to claim a partial exemption. This means you'll only be liable for CGT where the property was not your main residence. 

This is the same, whether the tenants are evicted by you or are renewed on a month-to-month basis until you move in. 

[#3]

Hi @BlakeATO, thanks so much for the quick reply! I think that's helpful, I just need a bit further clarification on my *eligibility* to even use the 6 year rule.

 think the key is understanding what it means to "move in as soon as practicable".   Is the situation I am in mean I can meet this requirement and thus still eligible for the 6 year rule, in future? Thank you!

[#4]

Hi again @BlakeATO , I did some more reading on this as I probably wasn't knowledgeable enough to ask my question in the right way.

So to be more specific, I'm trying to confirm if the 6 year rule (ie the ability to continue to treat your home as your main residence during an absence, as described in section 118-145 Absences) is available to those claiming a partial exemption? 

The section 118-145 Absences and 118-185 Partial Exemptions taken together seem to indicate that indeed it would be available, but I just wanted confirmation that I'm not missing something.

Many thanks!

[#5 · Accepted solution]

Hi @mrfuller,

You can claim the 6yr absence rule after you have lived in the property and used it as your main residence. The partial exemption will eventually be used to calculate your CGT, because you cannot claim an exemption for the entire time you own the property.

Calculating a partial exemption - Where: A × (B ÷ C) 

A - is the total capital gain from the CGT event,

B -  is the number of days in your ownership period when the dwelling was not your main residence

C - is the total number of days in your ownership period.

So when it was your main residence or 6yr absence rule was being used, these days will not be included for determining the days it was not your main residence. 

You can view 6yr absence rule and main residence exemption information here.

All the best.

[#6]

Thank you so much Jodie! It's clear now. Please mark your reply as the "Most Helpful" to my question