Capital Gains Tax exemptions

In regards to a property investment, the principal Capital Gains Tax (CGT) exemptions include:

  • Principal place of residence
  • Fifty per cent discount
  • Six year rule
  • Six month rule

Principal place of residence

A property is defined as a principal place of residence (PPOR) when a person resides, occupies and lives in it as their home. If a property is considered an owner’s PPOR then the owner is exempt from CGT (restrictions apply to properties on land over two hectares).

Fifty per cent discount

A property owner is entitled to a fifty per cent discount on CGT if they have held the property in their name for more than twelve months, from the date of signing the contract.

Six year rule

If a property was an owner’s PPOR when acquired, they are entitled to a full CGT exemption. If the owner moved out of the property and rented it out, they can claim an exemption from CGT for a period of up to six years after they moved out. The Australian Taxation Office (ATO) lists some of the qualifying reasons for a property owner to move from their PPOR as: accepting a new job interstate or overseas, staying with a sick relative long term or going on an extended holiday. If a property owner moves back into the property and afterwards moves out again then a new six year period commences from the time they last moved out.

Currently there are no limits to the number of times a property owner can do this, ensuring that each absence is less than six years. If a property owner does not rent out the property, but still moves out, they can claim an exemption from CGT for a period of greater than 6 years. When a property owner makes any of the above choices, they cannot claim any other property as their PPOR for that period of time (except for a limited time) refer to the six month rule below.

Six month rule

If an owner has a property that is their PPOR and circumstances require the owner to move out, they cannot claim any other property as their PPOR for CGT exemptions during the leave of absence.

Exceptions to this rule apply if both properties are treated as the property owner’s PPOR within a six month period and one of the below conditions is met:

  • The old property was the owner’s PPOR for a continuous period of at least three months in the twelve months before they sold it;
  • An owner did not use the property to provide assessable income in any part of the twelve months prior to selling;
  • The new property becomes the property owner’s PPOR.

As each individual situation varies, BMT Tax Depreciation strongly recommends discussing CGT implications with an Accountant to make sure a property owner is able to take full advantage of all available CGT exemptions.

It is essential to contact a qualified Quantity Surveyor to complete a depreciation schedule in order to maximise depreciation deductions on an investment property.

Read the full Capital Gains Tax & Building Depreciation article.

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