Hi All,

I have a house that I purchased in 2004 and have lived in as my main residence since then. I plan to move overseas later this year to work full time, and Im considering the tax implications as the property value has increased quite a bit.

I've checked the ATO website and found two seemingly conflicting messages. The first is where they explain how to obtain a full exemption from CGT:

"To obtain full exemption from CGT:

1. the dwelling must have been your home for the whole period you owned it
2. the dwelling must not have been used to produce assessable income, and
3. any land on which the dwelling is situated must be two hectares or less. "

My understanding of that ATO website quote is that when I move and begin to rent out my house, it will then not be CGT exempt, as I will not fullfil the first two criteria.

To confirm this I tried their CGT property exemption tool. I plugged in a hypothetical property sale date of 2010. The results told me that if I sold it in 2010, it would be CGT exempt even though I would have been renting it out and earning a taxable income for 2 years. That seems to contradict the above quote.

Does anyone have any advice they can offer, or easily understandable websites they can point me to? Considering that my property probably wont go up much over the next few years Im not too unhappy if I have to sell it to avoid paying some of the gains I have already made out as CGT.

Hope this makes sense and thanks in advance for any help.

You may be better to write to the Tax Office and get its view. However, it does seem that if you are absent for some reason and rent it out, you have a six year period of CGT exemption.

See this link to the ATO web-site

http://www.ato.gov.au/individuals/conte ... 2&st=&cy=1

part of which says:

Example

One period of absence of 10 years

Home ceases to be the main residence and is used to produce income for one period of six years

Lisa bought a house after 20 September 1985 but stopped using it as her main residence for the 10 years immediately before she sold it. During this period, she rents it out for six years and leaves it vacant for four years

Lisa chooses to treat the dwelling as her main residence for the period after she ceased living in it, so she disregards any capital gain or capital loss she makes on the sale of the dwelling. The maximum period the dwelling can continue to be her main residence while it is used to produce income is six years. However, while the house is vacant, the period is unlimited, which means the exemption applies for the whole 10 years. It doesn’t matter whether the period during which the home is used to produce income is a single block of six years or several shorter periods, so long as the total period it was used to produce income was no more than six years.

Because the dwelling is fully exempt as a result of Lisa making this choice, the home first used to produce income rule does not apply.

Home used to produce income for more than one period totalling six years

In the 10-year period after Lisa stopped living in the dwelling she rented it out for three years, left it vacant for two years, rented it out for the next three years, then once more left it vacant for two years.

If she chooses to treat the dwelling as her main residence for the period after she stopped living in it, she again disregards any capital gain or capital loss she makes on selling it. This is because the period she used the home to produce income during each absence is not more than six years.

Darn confusing and I don't fully understand it.

Thanks for the reply Judd. I have heard that before as well from another source, but it seemed too good to be true (for people who want to work and live overseas).

I will continue to look into the topic. If it turns out I can rent it out for upto 6 years without any CGT applicable, then the next question is will the interest on the mortgage and costs of having the house be tax deductable?

biogas wrote:I will continue to look into the topic. If it turns out I can rent it out for upto 6 years without any CGT applicable, then the next question is will the interest on the mortgage and costs of having the house be tax deductable?

All sounds rather complicated. Against what are the mortgage/rental costs to be offset? I believe that it can only be offset against income earnt and taxed in Australia. If your earning money overseas its the tax laws in that country which would apply. I think so, anyway.

Totally outside of my knowledge. Be interesing to learn the result. Maybe better to contact a tax specialist

Haven't read much of this - way over my head - but it may be useful to you.

http://www.ato.gov.au/individuals/pathw ... 01/002/012

I would want to express an opinion that is outside the square of the ATO or/and the legistrator in this country .
It is beyond my simple logic why FIRST DWELLING should be subject to any CGT , irrespective with the 6 years notion .
Are we interested in positively render young people to own their own house or not ?
If we genuinely are , the first apartment should be exempt of CGT . The young person then can buy a unit , rent it out to somebody who can afford that rent .
The young owner , usually would be overladen with mortgage he/she could not afford its monthly or fortnightly payments , while renting out , would move to a cheaper rental property that would suit his/her free income .Have U read the recent data as to how many youth are going back to their parents' house due to the skyrocketing rental and housing prices ?

A wealthy nation such as we are , who pride itself on fair dinkum of distribution of our resources , would put a good smile on the faces of those hard working youth , that currently find it very hard to repay their mortgages living in units/houses that are beyond their means .
This would be a very positive assistance through an archaic tax system .

Now of course there would be those rich families that would benefit from this idea . Who cares ? They are affluent anyway and can afford any amount . And how many would they be in the whole population ? Thousands ? So be it . But the majority will be your children and mein that right now are all more or less struggling with mortgage payments and are set to suffer even harder in the future .

Take that incentive of giving $4000/$5000 to every new born child . In a few years this simple payment has changed the fertility rate of this nation upside down . Yet a minority in the nation has been abusing it . Very young and irresponsible girls abuse it .There is always an abuser of any virtue . However the majority is assisted and moreover the nation as a whole is benefiting . At least we are not negatively fertile the way we used to be before .

An appropriate brainstorming of this idea would be a necessary precurser to its legislation and implementation . Certain thresholds would most likely be introduced , but IMHO , if this is seriously considered , the nation and its citizens would only benefit ...cheers eGilmore

egilmore wrote:The young person then can buy a unit , rent it out to somebody who can afford that rent .

eG, you and I can achieve this. Simply buy your next door neighbors house and his yours and then live in his now rented house and he in yours. All perfectly legal by the way.

Judd , Sorry I don't get it . Wouldnt this be Perfect for CGT , while both of us will enrich Swain coffers ? Isn't it or am I wrong ? ...eG

Sorry, eG, but my comments were tongue in cheek. And while you are correct about CGT just think of this. After 12 months and 1 day the tax aspect would halve and, if you were in the 30% bracket, you would pay only just a little more (16.5% including Medicare levy) than you would under superannuation tax arrangements. BUT unlike a share price which is transparent on a day to day basis, with residential property the price is what is agreed to between the buyer and the seller. Dwell on the permutations around that aspect.

Hi Guys, thanks for the comments so far in this thread.

I called the ATO today to clarify everything, and they confirmed that I will get upto 6 years CGT expemtion after moving out and still treating the house as my main residence. During this time I can rent the property and use the mortgage interest and rental costs to offset the rental income. Seems like a win-win situation all around which will average an expected 8% yield after tax.

BTW, egilmore you're right, I am a Gen-Y looking to go and experience things by working overseas. And I agree in recent times it is difficult for people to find their own place and move out of their parents house. When I first started I was paying 60% of my after-tax salary as mortgage payments as a single dwelling owner-occupier, and that as over a 30 year loan lifetime. Since then things are much more comfortable as I changed to a higher paying job. The idea of having your first swelling being CGT free seems like a good one to me, I wonder what percentage of the governments CGT income comes from peoples first properties anyway?

IT does not matter what percentage it is .
There should be a FAIR DINKUM based priciple that FIRST PROPERTY is where Australian citizens ought to live in WITHOUT the INTERVENTION of the TAXMAN . ATO as an excutioner of the government ( and do not forhet that the govermnent is us ) has nothing to do with my only dwelling house . Do they intervene with my only car ? Or Boat ?
It is then different when one has a second house . This should be subject to a CGT .
I said this idea should be brainstormed before moving foeward to legislation .
If u know any POLITICIAN or relative of a a VIP reading this thread please pass my plea to them .
Who knows ? might solve the problem of my Y gen children as well as any other struggling Aussie ...
Cheers eG