What Is The 6-Year Exemption Rule On Investment Property?
Are you going to be slugged with CGT on the sale of your investment?
1. What is the 6-year Exemption Rule?
When you buy a property for the intention of using it as your primary residence start living in it, it is your main residence. When you stop living in your main residence, then sell it at a later date, the 6-year exemption rule comes into play.
Once your property is no longer considered your main place of residence, it does not satisfy the criteria outlined above, then for Capital Gains Tax (CGT) purposes, it is no longer considered your main residence.
However, ATO allows some leeway on this.
Even after you move out, for CGT purposes you are allowed to treat your property as your main residence for up to a 6-year period. This is known as the 6-year absence rule, or 6-year exemption.
This time can vary depending on what happens after you leave the premises:
* If you are renting it out, it can remain considered as your main residence for up to 6 years.
* If you don’t rent the property, it can remain considered as your main residence indefinitely.
There is no hard limit on the number of times you can access this exemption.
2. The 6-year Exemption Rule Key Points
When claiming a main residence exemption on your CGT, you can only do this under your individual name. This often overlooked point is crucial in excluding properties that are held within trust or company structures.
As an individual you can have only one main residence at a time. The exception to this rule when you are moving house. In this instance, certain provisions are in place that allows you to have two main places of residence for a six-month period only.
Main residence exemption is only available for land that actually has property on it. Main residence exemption can’t be claimed on a vacant block.
It is vital to remember that ‘Main residence’ only accounts for up to 2.5 hectares of land. If your property is greater than 2.5 hectares, you can only receive an exemption on your home & surrounding 2.5 hectares.