If you've considered moving out of your family home and converting it to a rental property, but with a view to returning at some point in future, you may be familiar with the six-year capital gains tax rule. This important rule offers a significant tax benefit to investors in this circumstance, but there are only certain circumstances under which it will apply.
Please note: this information is intended as a guide and not financial advice. Please discuss your individual investment goals and circumstances with your accountant and/or financial advisor before taking any action.
What Is Capital Gains Tax?
When you sell a real estate asset for more than it cost you to acquire the asset, you are making a capital gain. This capital gain must be reported in your income tax return and when you make a capital gain, it is added to your assessable income and increase the tax you need to pay.
Investment properties are generally subject to capital gains tax (CGT) while - and here's the important distinction - most personal assets including your own home are not.
What Is The 6-Year Rule Around CGT?
The ATO outlines that if you have moved out of your home (primary place of residence) and list your property for rent to produce income, you can treat it as your main residence for up to six years after you stop living in it.
If you are absent and generating income from your property more than once during the period you own the property, the six-year period that you can treat it as your main residence applies separately each time you leave.
This means you can move in and out of the property multiple times, and provided the length of time that you’re away never exceeds six years, you’ll never have to pay CGT.
Some conditions apply however, including:
For further information around the specific tax obligations and deductions available in your circumstances, contact the ATO or your discuss with your accountant.
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