Can I Move into My Rental Property?

Can I Move into My Rental Property to Avoid Capital Gains Tax in Australia?

Are you considering moving into your rental property to dodge the dreaded capital gains tax (CGT)? While it might seem like a smart move, there are important rules and traps to be aware of. Let's dive into the specifics and make this tax topic as entertaining and informative as possible!

The Basics of Capital Gains Tax (CGT)

Capital Gains Tax is the tax you pay on the profit from selling an asset, like property. If you sell a rental property, you generally need to pay CGT on any gain. However, there's a way to reduce or even avoid CGT by moving into your rental property and making it your main residence.

The Main Residence Exemption

The main residence exemption allows you to avoid CGT on your home. To qualify:

• The property must be your primary place of residence.
• You must live in the property for a sufficient period.

How Long Should You Live There?

To take advantage of the main residence exemption:

• You should live in the property for at least 6 months.
• The longer you live there, the stronger your case for claiming the exemption.

Traps to Avoid

1. Short-Term Moves:

   • Moving in for a short period (e.g., a few weeks) before selling is unlikely to qualify for the exemption.
   • Example: John moved into his rental for 2 months before selling. The ATO disallowed his claim for the main residence exemption.

2. Partial Exemptions:

   • If the property was rented out for part of the time you owned it, you might only get a partial exemption.
   • Example: Sarah owned a property for 10 years, rented it for 8, and lived in it for 2. She can only claim a partial CGT exemption.

3. Dual Residency:

   • You can’t claim two properties as your main residence simultaneously.
   • Example: Mark tried to claim both his city apartment and his rental property as his main residence. The ATO disallowed one claim.

Non-Deductible Expenses

While moving into your rental property can help with CGT, not all expenses are tax deductible:

• Initial Repairs: Fixing issues that existed when you bought the property.
• Improvements: Adding new features or significant upgrades.
• Personal Use Costs: Expenses incurred while living in the property.

Example of Non-Deductible Expenses

• Initial Repairs: Replacing a broken window that was damaged before you bought the property.
• Improvements: Adding a new deck or swimming pool.
• Personal Use Costs: Utility bills and groceries while you live there.

Gotax Piece of Tax Advice

Strategic Property Planning: Consider the timing of your move and the duration you plan to live in the property. If done correctly, this strategy can save you a significant amount in CGT. Always consult with a Gotax professional to ensure you meet all requirements and make the most of available exemptions. 

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