Six year rule

Question

Hi I have an investment property that I purchased under six years ago. I moved into the property immediately for a six month period and then commenced renting it. It is still rented today. Since then I have not owned another property that was my PPOR. I would like to sell it before the six year period is up. Will this be subject to any CGT?

Regards Matt

Answer

As long as you and your spouse are not covering another property with your main residence exemption and the property is in your personal name (ie not a trust) then it can be fully covered with your main residence exemption while rented out for 6 years Section 118-145 ITAA 1997. If you don’t manage to sell within the 6 years then CGT will apply but only proportionally. What will happen is the cost base of your property will be reset under section 118-192 to the market value when you first moved out. This also resets your acquisition date to the date it was first rented out. The capital gain is then apportioned between the time the property was covered ie 6 years and the time that it was not so if it took you another year to sell then 1/7th of the gain would be subject to CGT and then you would get the 50% discount.