1. The Principle Place of Residence Exemption. As a general rule, you can avoid capital gains tax when selling your investment property if that property is your primary place of residence (PPOR). This rule exists because you usually don't generate an income from living in your own home.
To avoid CGT, you'll need to live in a property for twelve months for it to be counted as your main residence before you can move out and use it as an investment property.
Having Your Rental Property Become Your Main Residence
Either way, should you decide to have your rental property become your main residence, you will need to declare this for tax purposes. In other words, you will need to disclose that your investment property is now your principal place of residence (PPOR).
If you acquire a new home before you dispose of your old one, you can treat both as your main residence for up to 6 months. You can do this if all of the following are true: you lived in your old home as your main residence for a continuous period of at least 3 months in the 12 months before you disposed of it.
Negative gearing can apply to any type of investment, not just housing. Individuals who are negatively geared can deduct their loss against other income, such as salary and wages.
If your rental property becomes your main residence, your eligibility for a main residence exemption is limited to the period you lived in the property. For the period the property was rented out, you will be liable for CGT when you sell the property.
The tax gains of rentvesting
Additionally, if you buy a property, live in it for six to 12 months, then rent it out, you don't pay any capital gains tax on the growth in that investment for six years.
As a general rule, you can avoid capital gains tax when selling your investment property if that property is your primary place of residence (PPOR). This rule exists because you usually don't generate an income from living in your own home.
You don't pay Capital Gains Tax if both of the following apply: you get less than £3,000 or an amount less than 5% of the value of your shares in the company, valued just before the takeover. the cash you get is less than the cost of your original shares.
The logistical process of moving into your own investment property needs to be considered. If the property is vacant, with no tenant in place, you will be able to move straight in.
Declaring your investment property as your primary residence may eliminate your ability to claim tax deductions for council rates, home loan interest, repairs and upkeep, and depreciation on the property. If you continue to rent out a portion of the property, you may be able to deduct some of these costs.
The short answer is yes - but it requires some legwork. Life happens and sometimes financial circumstances change. Perhaps your investment property is negatively geared with negative cash flow and to save money you are considering turning your investment property into your primary place of residence.
The 2-out-of-five-year rule states that you must have both owned and lived in your home for a minimum of two out of the last five years before the date of sale. However, these two years don't have to be consecutive, and you don't have to live there on the date of the sale.
Generally, you can only claim one principal place of residence exemption anywhere in Australia at a time, although there are limited exceptions to this rule.
You won't have an assessable capital gain when you sell a business asset if: your business has owned the asset for at least 15 continuous years. you're aged 55 years or over. you're retiring or permanently incapacitated.
If you use your former home to produce income (for example, you rent it out or make it available for rent), you can choose to treat it as your main residence for up to 6 years after you stop living in it. This is sometimes called the '6-year rule'. You can choose when to stop the period covered by your choice.
Capital gains are taxed at the same rate as taxable income — i.e. if you earn $40,000 (32.5% tax bracket) per year and make a capital gain of $60,000, you will pay income tax for $100,000 (37% income tax) and your capital gains will be taxed at 37%.
The share matching rules determining which shares have been sold for capital gains tax liability are as follows: Shares bought and sold on the same day. Shares acquired within the 30 days following the sale (on a 'first in, first out' basis)
Another way to avoid or reduce CGT is by increasing your property's cost base. This is the cost of acquiring, holding, and disposing of a property, and is subtracted from the selling price to give you your capital gain. According to the ATO, the cost base of a CGT asset is made up of: The money you paid for the asset.
Working out your capital gain (or loss)
To quickly figure out how much capital gains tax you'll pay - when selling your asset, take the selling price and subtract its original cost and associated expenses (like legal fees, stamp duty, etc.). The remaining amount is your capital gain (or loss).
An exception to this is the 6 month rule which states that where a taxpayer acquires a new dwelling that is to become their main residence, and the taxpayer still owns their existing main residence, both dwellings can be treated as the taxpayer's main residence for a period of up to 6 months.
Australia's six year absence rule allows you to turn your primary place of residence (PPOR) into an investment property and collect rent and claim depreciation for up to six years provided you've stopped living there. When it comes time to sell you won't be liable for capital gains tax or CGT for those six years.
Can I Live in My Investment Property? The short answer is yes. An investor can become an owner occupier by moving into their investment property. However, before making a move, you must inform the Australian Taxation Office (ATO) as the ATO requires disclosure of the same.
A BMT Tax Depreciation Schedule last up to forty years and has a one-off, 100 per cent tax deductible fee. If you're interested in learning more about depreciation and the deductions you're entitled to claim for your rental property , Request A Quote or contact one of our expert staff on 1300 728 726.