Ask Margaret: Will CGT still apply if I move into my investment property?

Hi Margaret,

I have had an investment property for the past seven years that is negatively geared in the inner Melbourne Inner East.

The house is very old and has had numerous problems due to its age. We are looking at demolishing this house and rebuilding a new home.

On completion of construction, our intent is to either rent it out or making this our principle place of residence (PPOR) if we can't rent it out.

Could you please advise, if we decide to sell it in a few years' time (after we have used it as a PPOR), would we be liable for capital gains tax (CGT) or is there a sunset clause after which CGT does not apply? 

Regards,

David

Hi David

It would seem that CGT, when it applies and whether there are time limits or statutes on it, is one of the most misunderstood areas of our tax law that there is.

In your case, the property you refer to has been your investment property since around 2008, and therefore it is well within the era that CGT is charged on any property which is not your PPOR.

Being rented out is not a criteria which must apply. Whether it is rented or not, if it isn't your own home, CGT applies (unless it started out as being your own home and then you moved out). 

Under these circumstances you may qualify for the six year rule exemption, which allows you to move out for a period of up to six years and not incur any CGT if you subsequently move back in or sell.  This of course depends upon you not claiming this exemption on any other property - you can only have one exempted property at a time.

If you were to move in to this property, and had only this property on which your principal place of residence exemption was placed, it would not matter how long you stayed in it, there would still be some assessable gain for the period of time it was not your PPOR.  This is because it was an investment when you bought it and no amount of living in it can wipe this fact away.

If you go down this pathway you must keep accurate records of your purchase price and everything you spend on the property, so that pro-rated capital gains tax can be established when the time come for you to finally sell the property.

Regards,

Maragret

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