I bought a unit for $250,000 in March 2001, which I moved into straight away. I was sent to work in Japan for 2 years in March 2003, at this time the unit was valued $280,000. During this time I rented the property out for $300 per week. I returned to the property in March 2005 and obtained a valuation at that date of $320,000. I have recently sold the unit for $400,000. How do I calculate the capital gain, if any?
I have some good news for you!
You purchased your unit in 2001 and occupied it as your main residence. You moved away from your home for a period of time and later returned to re-occupy it as your main residence. You state you rented your home out during this period and probably declared the rental income and any expenses on your annual tax returns.
ATO guidelines state that if you move out of your main residence you can still choose to have that dwelling treated as your main residence for CGT purposes for:
A maximum period of six years where the dwelling is used to produce income,eg it is rented out
An indefinite period where the dwelling is not used for income-producing purposes.
During the period that this exemption applies, no other property can be deemed to be the person’s main residence for CGT purposes (except if changing main residences – special rules apply).
This choice is only available in respect of a dwelling that has been the main residence of the taxpayer. Each time a person moves back into the home and establishes it as a main residence they become entitled to restart the six years of income-producing use and still maintain a full exemption.
So, in effect you can move out and rent your home for up to six years, re-occupy for a short period, move and rent it out again for up to six years, re-occupy again, for an indefinite number of times as long as you do not claim main residence on another owned property during those periods.
By Paul Jackson, MacDonnells Financial Services
Disclaimer: This article is general in nature and is not intended as investment advice. Readers should always seek further advice before making any financial decisions.