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6 year rule, PPoR to IP while still at dwelling?

Discussion in 'Real Estate' started by CJ. Wentworth, 6th Feb, 2010.

  1. CJ. Wentworth

    CJ. Wentworth Well-Known Member

    Joined:
    9th Mar, 2008
    Posts:
    92
    Location:
    Cairns, QLD
    G'day all, hope all is well.

    Have a bit of a question in regards to the 6 year rule, outlined below.

    Treating a dwelling as your main residence after you move out

    In short, so long as you don't claim another dwelling as your PPoR, you can 'convert' your current PPoR into an IP by moving out and renting/buying somewhere else.

    Main residence exemption - the effect of using your home to produce income

    According to this page when you use your PPoR to generate income, you can claim a deduction on the appropriate % of rented space. This also means you lose the CGT exemption benefit.

    What I was wondering is if there is any way to combine these two rules.

    Why does the ATO allow you to claim deductions on your PPoR turned IP and keep your CGT exemption (via the 6 year rule) but not allow you to reside in your PPoR while renting it out with similar exceptions?

    Is there anyone out there who have made/are making use of the 6 year rule?

    I really hope that makes sense.
     
  2. James_w

    James_w Member

    Joined:
    11th Feb, 2010
    Posts:
    13
    Location:
    mars
    have used the 6yr rule several times however what your asking is renting the property out while still living there this would be renting rooms to a boarder I assume which does not incur any tax as far as I am aware.
     
  3. CJ. Wentworth

    CJ. Wentworth Well-Known Member

    Joined:
    9th Mar, 2008
    Posts:
    92
    Location:
    Cairns, QLD
    oh? I hadn't realized that.

    I assume if that is the case however, that because the income does not incur tax, then expenses are not tax deductible?
     
  4. MattR

    MattR Well-Known Member

    Joined:
    23rd May, 2007
    Posts:
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    Location:
    Sydney
    If you use part of your home for income producing activities this can affect the PPOR exemption. If you have boarders or run part of your home as a place of business (as opposed to a study) you are using your home to earn income, hence the exemption is affected, generally by a percentage of floor space.

    The six year rule is actually a concession and a fairly equitable one. It's designed to not penalise people who have had to move away from their PPOR for a period of time, such as salespeople moving to a new district, armed services people being posted o/s, people moving to look after sick relatives etc. etc. Its quite generous but it is finite.

    So in this instance you could retain your PPOR but you are affected by the percentage of the PPOR that you have used to create income. The six year rule shouldn't apply as you have not moved.
     
  5. CJ. Wentworth

    CJ. Wentworth Well-Known Member

    Joined:
    9th Mar, 2008
    Posts:
    92
    Location:
    Cairns, QLD
    Thanks very much for the reply Matt. I do theoretically understand the six year rule, as well as the use of PPoR to generate income (and subsequent loss of CGT exemption).

    I was just wondering if there were any way to combine these rules.

    I find it odd that someone could theoretically move into their neighbour's house and rent out their own while keeping their CGT exemption status.