Your Investment Property: PPOR and the six year rule

October 3, 2020 - 4 minutes read

Property investment expert and Nitschke Nancarrow managing partner Kym Nitschke answers a key question about treating an investment property as a Principal Place Of Residence (PPOR).


Question:

Hi there,

I purchased an investment property in 2014, which was tenanted from Day 1. But I have now sold my PPOR and have not found a new one, so I plan to move into this investment property and treat it as my PPOR so I can take my time in finding my next house. 

My question is, does 6 year rule still apply even if I did not initially move into the investment property as my PPOR? If the 6 year rule can apply in my case, does the rule reset assuming I move out later and lease it out, then move back in within 6 years? When I sell the property in the future, will my CGT only be calculated from 2014 to 2019 since the rest of the period is exempt under the 6 year rule?

Regards

Dreamhouse

Kym’s answer:

This is an interesting question for me to answer.  In my opinion, yes, the six year rule will apply from 2019 even if you did not initially move into the investment property as your PPOR.  If you look at Income Tax Assessment Act 1997 section 118.145 there is no prerequisite about the house having to be your PPOR from the date of acquisition for the six year rule to apply.  This section of the Act is very broad which allows for some creativity.

Accordingly if you move out later and lease it out, then move back within the six years, the rule should reset. This is provided that you don’t elect to use the PPOR on the other property that you move into.  This reiterates that even though you own multiple properties you can only elect to claim the PPOR on only one of them.  This may not be the best outcome for you if the new home that you move into is much more expensive than your rental property.  Which is usually the case.

And finally, your CGT will only be calculated from 2014 to 2019 and the rest of the period the property will be CGT exempt under the six year rule.  That’s because that is the only time that the property served as an investment property.

As a side note, a component of the six year rule which most people overlook is that if the house becomes vacant, the period of CGT exemption is not capped at six years, it then extends indefinitely.

Get advice

Want advice about your property investment strategy, financial plan, accounting or any other wealth need?

Contact Nitschke Nancarrow, specialists in accounting, financial planning, loans and finance, investment and business. We operate in Adelaide, Sydney, Melbourne and throughout Australia. Managing partner Kym Nitschke is available for a free initial discussion about your situation. Call us on (08) 8379 9950 or send me an email.

– Kym Nitschke

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