How much CGT due after moving and renting out primary residence in Australia?

Question

I currently live in my primary residence with an outstanding mortgage, but will be moving out and relocating for work in a few months time. The initial post is for 2 years but may be extended indefinitely.

My work is providing me and my family with accomodation whilst away and I will be renting out my primary residence.

I understand that I will be able to rent my primary residence out for 6 year and be except from paying any CGT if I sell the house within those 6 years, as long as I don't buy another primary residence during that period.

I however have 2 questions regarding this matter:

1. If I keep renting the house for longer than 6 years, say 10 years, before I sell it, will I pay CGT based on 4 years or on the full 10 years? And how would I calculate the cost base?

2. If the primary residence is in my name only and we buy another primary residence in my wife's name will I still qualify for the 6 year rule above for my primary residence?

Answer 1

You are correct in your initial assessment of this 6 year rule. If you keep it as your primary residence after moving out you can rent it out for up to 6 years and then sell it within that 6 year period and not pay any Capital Gains Tax (CGT).

If you rent it out for more than 6 years and it still remains as your primary residence you will only pay CGT on the period over the initial 6 years.

For example if you lived in the house for 10 years then rented it out for 10 years and the property remained your primary residence throughout, you would use the initial purchase price + purchase cost + selling cost as your cost base, deduct this from your selling price and work out the proportion of days rented out (after the first 6 years) over all the days you owned the property. In this case the proportion would be approximately (4 years / 20 years = 20%).

So if your sell price is $400,000 and your cost base is $100,000, thus your total capital gain is $300,000 you would pay CGT on 20% of this $300,000 - being $60,000.

Regarding the second part of your question, as both you and your wife are separate entities for tax purposes, and the primary residence you are renting out is solely in your name, then yes you can live in another house which is solely in your wife's name and still qualify for the 6 year rule above.