Treating a property as a principal place of residence (PPOR) is one of the more common Capital Gains Tax exemptions available. As we know, in most cases there is no tax payable on the sale of the family home (provided the land is under 2 hectares).
The 6 year absence rule follows on from the PPOR exemption and gives taxpayers who stop living in their main residence the ability to derive rent it from it for up to 6 years and still treat the property as their PPOR provided:
- During the period the taxpayer vacates the PPOR, they do not establish a new property that they own as their main residence. Each taxpayer is only entitled to treat one property as their main residence at any particular time.
- Generally, to be entitled to the full main residence CGT exemption on the sale of a property, the taxpayer must have established the dwelling as their main residence as soon as practical after they had acquired the property.
The 6 year time frame applies to each separate absence, as such, the 6 year timer will reset provided the taxpayer re-establishes the property as their main residence after any absence.
In the situation where a taxpayer is absent from their PPOR but does not derive any income via rent, provided they meet the same criteria above, they are able to treat the property as their main residence indefinitely, the 6 year absence rule only applies if the property produces income.
This presents some opportunity to maximize client’s cash flow in circumstances such as interstate secondments, overseas holidays etc without upsetting the CGT exemption status of a PPOR. Please contact our office if you would like to discuss how this might impact you
Contributed by Adam Burgess.