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.
For example, say you've lived in one property and then moved into a second property for an extended time. Under the six-year absence rule, both properties could technically be considered your main residence for the first six years after you move out of the first property.
How long do you have to live in a house to avoid capital gains tax in Australia? 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.
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 it takes longer than 6 months to dispose of your old home, the main residence exemption applies to both homes only for the last 6 months before you dispose of your old home. For the period before this, when you owned both homes, you can choose which home to treat as your main residence.
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.
What is the CGT Six-Year Rule? The capital gains tax property six-year rule allows you to use your property investment, as if it was your principal place of residence, for a period of up to six years, whilst you rent it out.
For most people, this percentage is far below their regular income tax rate and highlights the benefit of asset ownership within superannuation. If you are retired and already drawing your pension income from your super accounts, CGT is not applicable.
It is also possible for a retiree to not pay any capital gains tax when selling an investment property through deductible super contributions and the general 50% CGT discount, or if the investment property is owned within a SMSF that is in pension phase.
Under Australian law, you can give real estate to a relative as an outright gift. When giving ownership to a third party, there is no exchange of money. The gifting process involves filing a Transfer of Land with your title office. Filing a gift deed may also be necessary.
If you inherit a property and later sell or otherwise dispose of it, you may be exempt from capital gains tax (CGT). The same exemption applies if you are the trustee of a deceased estate. Importantly, the inherited property must include a dwelling and you must sell them together.
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.
“The 'six-year rule' resets each time you move back into the property and live in it as your main residence. That means that if you move back in and then later move out again, renting the property to tenants, you get a further six-year absence period during which the main residence exemption is protected.”
The 80/20 principal
In terms of the same, 20% of the capital gain is effectively exempted from capital gains tax. Accordingly 20% of the proceeds is considered as the value of the property as at the 1st of October 2001 and the capital gains tax is then calculated on the remaining 80%.
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.
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.
It involves reducing your CGT liability when you sell an asset outside the super system by offsetting it with a tax deduction you receive for making a tax-deductible personal super contribution. This is a win-win as it not only reduces the tax you pay but it also increases the amount you have in your super account.
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%.
Capital gains
A capital gain is NOT treated as income for social security income support purposes. If a capital loss is made it CANNOT be offset against other income amounts.
This is known as the tax-free threshold. You can claim the tax-free threshold when you complete your TFN declaration with your employer. If you earn less than $18,200 for the entire income year you generally don't have to pay any tax.
The ATO receives a large amount of data from ASIC, brokers, exchanges and share registries. This data includes dividend payments, and the purchase and sales of shares, which will appear on the ATO's reports used to prepare tax returns.
There is a capital gains tax (CGT) discount of 50% for Australian individuals who own an asset for 12 months or more. This means you pay tax on only half the net capital gain on that asset. Some assets are exempt from CGT, such as your home.
12-month ownership requirement
The CGT event is the point at which you make a capital gain or loss. You exclude the day of acquisition and the day of the CGT event when working out if you owned the CGT asset for at least 12 months before the 'CGT event' happens.
The 12 month rule generally requires that forex realisation gains and losses on the acquisition or disposal of capital assets be folded into the CGT treatment of the underlying assets, if the time between that acquisition or disposal and the due time for payment is not more than 12 months.