A lot of things can change in life.
A lot of things can change in life. Homes can become investments, investments can become homes and that “forever home” might be more shortlived than anticipated. If circumstances do change with your property though (hopefully for the better) then the 6 year rule is one to keep in mind.
Most will know that in Australia, your principal place of residence (main home) is exempt from capital gains tax. Provided you live in it, and don’t gain an income from it, whatever you make on selling it is all yours - one of those very few circumstances in life where the ATO (Australian Tax Office) doesn’t put their hand out on a win. Between this and the capital gains tax concession (50% discount on properties held at least 12 months), this is one of those lovely things that can really help you get ahead, particularly when you consider the market we have experienced, almost nation-wide, over the past few years and the gains made.
Appreciating that not every move from one home to the next is linear and there might be some stops along the way (time spent renting, time overseas, etc.), the benefits of a principal place of residence can be held over for up to 6 years after leaving your PPOR, provided you don’t swap the benefit to a new property.
Looking at this in practice, let’s say a person buys their first home for $250,000. They live in that home for 3 years (as their PPOR), with the value increasing to $300,000 in that time before they move interstate, converting the property to an investment while they rent. 5 years later, they still haven’t bought a new property, their original purchase has continued to appreciate and is now worth $400,000. If they were to sell at this point, they can do so and retain their capital gains tax exemption – netting the $150,000 difference since their purchase. Alternatively, had they bought a new home when they first moved out, then they would have paid tax (at their marginal rate, minus applicable concessions) on the difference between the value when it ceased to be their PPOR ($300,000) and the final sale ($400,000). That could mean tens of thousands of difference.
To make the most of your property and the opportunities available to you, don’t forget your property team when it comes time to sell – and in this case, speak to your accountant early!