TAX Q&A: On CGT Exemption
Q: I purchased a house in February 2014 as a first home buyer and lived in it for roughly a year. I then refinanced a year after purchasing it as an investment property loan and moved back in with my parents. Now I’m planning on selling it and I would like to know if I’m able to apply for the CGT exemption.
A: As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.
Assuming that you purchased the property in your own name, you will be eligible for the CGT exemption because the property was initially used as your principal place of residence – provided you did not purchase or nominate any other property as your principal place of residence while you were living with your parents.
If you did not use your property to produce income while you were not living there (for example, you used it as a holiday home or you left it vacant), you can treat the property as your main residence for an indefinite period after you stopped living in it, provided it isn’t available for rent or advertised for rent.
If you used your property to produce income – for example, you rented it out or it was available for rent – you can choose to treat it as your main residence for up to six years after you stopped living in it.
This is usually known as the ‘six-year rule’, and provided you move back into the property prior to the six years expiring, then you can start a new period of six years.
There is no limit to how many times you can do this; however, please take into consideration the tax anti-avoidance provisions if your main purpose for doing this is to obtain a tax benefit. That is, you need to show that there is a genuine reason why you have moved out and back in again, such as your employer requesting that you live away from home to perform your occupational duties, or the need to care for family, your parents etc.
At this stage, either scenario will make you eligible for the main residence CGT exemption if you sell the property now.
– Angelo Panagopoulos
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