The 6-Year Exemption Explained
Did you know that in Australia, you may not have to pay tax when selling a home you’ve moved out of? This is called the 6-Year Rule for capital gains tax (CGT). It can help you save money if you decide to sell your property within six years of leaving it.Let’s break it down.
What is Capital Gains Tax (CGT)?
CGT is a tax you pay when you sell a property or investment that has gone up in value. But if the property was your main home (the one you lived in), you don’t have to pay CGT.
However, if you move out of your home, the rules change. This is where the 6-Year Exemption comes in.
How Does the 6-Year Rule Work?
If you move out of your home and don’t live there anymore, you can still claim it as your main home for up to six years. This means you can sell it during that time and won’t have to pay CGT.
Examples of When the Rule Applies
Example 1: Moving in with Family
Emma lived in her house for three years. Then, she moved out to live with her parents. Emma decided to keep her house as a rental property. Five years later, Emma sold her house. Because she sold it within six years of moving out, she didn’t have to pay CGT.
Example 2: Moving for Work
James bought a house and lived there for two years. He then moved to another city for work and rented out his house. Four years later, James sold the house. Since it had been less than six years, he didn’t have to pay CGT.
Example 3: Staying Beyond Six Years
Sarah lived in her home for five years before moving overseas. She rented out her house while she was away. After eight years, she decided to sell it. Because Sarah waited longer than six years to sell, she had to pay CGT on the extra two years.
What Happens if You Move Back?
If you move back into your home before selling it, the 6-Year Rule resets. This means you can claim the exemption for another six years if you move out again.
Things to Remember
- The property must have been your main home before you moved out.
- If you use the 6-Year Rule, you can’t claim another property as your main home during that time.
- If you sell after six years, you may have to pay some CGT.
Why is This Rule Helpful?
The 6-Year Rule is great if you want to keep your home as an investment after moving out. It gives you time to rent it out and decide if you want to sell without worrying about paying extra tax.
Consult with a Tax Professional
To make sure you’re following the rules and not missing out on valuable deductions, it’s a good idea to talk to us at Deryan Financial Group. We offer personalized advice based on your unique situation, help you handle tricky issues, and guide you in optimizing your tax strategy.
Disclaimer
This article is meant to provide general information only and may not consider your specific needs. For tailored advice that fits your unique circumstances, we recommend reaching out to Deryan Financial Group. Our experienced team is here to help you navigate Australian tax rules, financial products, and strategies, ensuring your plans align with the latest regulations.