‘Six-year rule’: How rentvestors can avoid capital gains tax

April 21, 2023
d1

Beachside locales like Byron Bay are favourite bases for rentvestors who are renting out their main residence. Photo: Getty

 

Rentvesting has become phenomenally popular over the past 10 years, generally among first-home buyers who can’t afford to buy a home where they’d like to live, so they rent in their chosen location and invest elsewhere.

But increasingly, it’s becoming a valuable part of an investment strategy for older, wealthier property buyers.

The major draw is what experts have labelled the “six-year rule”, which means if someone buys a property, lives in it for six to 12 months, and then rents it out, they don’t pay any capital gains tax on the growth in its value for six years.

Generally, if you hadn’t lived in it at all, then you’d have to pay the tax from the day you bought it, so if it were sold after a year, half of the growth in price would be counted as capital gain.   

d2

Investors might not have considered this strategy before. Photo: Getty

 

As a result, rentvesting can be worth a great deal for residential property investors. “It becomes a real asset,” said Mark Chapman, spokesperson for H&R Block. “Provided the home is counted as the main residence, even though it’s rented out, it still qualifies for that main exemption, just like a family home.

“It means you have to rent somewhere, too, that you actually live in, but that may suit some investors and it means they can pick up the benefit of the capital gains exemption on that first property.”

Many investors might not have considered this strategy before, not having contemplated the prospect of renting a primary residence. But today, with rents skyrocketing so much over the past two years, some first-home buyers can no longer afford to rentvest, leaving the field open for more investors.

“I’ve done it myself,” said Nicola McDougall, chair of the Property Investment Professionals of Australia. “I bought a property in Brisbane and live in it as my home for five years then we shifted to the Sunshine Coast and rented a home there, renting out the Brisbane place but keeping it as the principal place of residence.

“It worked for us as a sound investment strategy and, given the current state of the rental market, you have to be a high-earner in order to afford to rent in the best locations.”

Managing director of buyers’ agency Aus Property Professionals Lloyd Edge says it sometimes doesn’t make sense simply to leave equity in a home when it could be put to better use, especially as buying in a secondary area often provides better yields and capital growth.

“Most who’ve done this do move around a lot, maybe between Sydney, Melbourne and Byron Bay at different times of year or overseas, often because of their work,” Edge said. “Usually, they don’t have kids, so renting a home suits them and makes sure they’re not tied down.

“At the same time, they’re receiving cash flow from their rental properties, they have more disposable income, and they’re able to use their funds to build up their portfolio. It’s a decision that a lot of people are making these days.”

 

Source: Domain.com.au

You might be also interested in

Article Banner
If housing is so undersupplied, why are some markets falling in value?
The current state of the Australian housing market is often characterised as undersupplied. Supply is at the centre of government policy approaches to housing, and the latest reporting from Housing
VIEW POST
Gettyimages 1922023181
Here we go again: Shipping disruptions could pose major risk to interest rate cuts
‘Left of field’ shocks to global supply chains such as the tensions playing out in the Red Sea are the biggest risk to inflation and interest rates, the Reserve Bank
VIEW POST
Cover
Construction cost growth ‘returns to trend’
A reacceleration in the quarterly pace of growth for national construction costs is suggested to be a return to trend rather than a new surge, according to CoreLogic. The Cordell Construction
VIEW POST
1
Rental market to reach ‘tipping point’ in 2024: Domain
Domain’s Dr Nicola Powell told the Savings Tip Jar podcast the rental market will likely ease some time next year as more renters buy property or move into share houses,
VIEW POST
A
Monthly Housing Chart Pack – January 2024
Here are the must know stats, facts and figures on Australia’s residential property market. Annual growth in home values have seen ups-and-downs while rent values have increased at more than
VIEW POST
A
6 strategies to help you renegotiate your home loan and save money
Home loans are at their most expensive in 11 years, prompting a mad scramble among heavily mortgaged homeowners to either switch lenders or negotiate a better deal with their existing
VIEW POST
2
Richmond: Where you’ll find everything from cheap street food to luxury furniture
Richmond’s Barkly Gardens are popular with locals. Photo: Greg Briggs Bridge Road is back. The news from Richmond has the ailing retail strip shucking off the doldrums and getting a
VIEW POST
F
Home prices set to break new records in 2024, with three cities tipped to outperform all others
Stage three tax cuts, soaring population growth and lagging housing supply could see national property prices rise up to 4% over 2024, and as much as 8% in some capital
VIEW POST
Cover
Monthly Housing Chart Pack – December 2023
Each month the CoreLogic Research team puts together a Housing Chart Pack, with all the latest stats, facts and figures on the residential property market, such as the combined value
VIEW POST
1
Aussies amp up energy efficiency in homes as cost of living soars
With the cost of living higher than it has been in decades, homeowners and renters are looking for ways to reduce bills and save some money. Those living in homes
VIEW POST

Get your Free Property Guide.

Here goes your text ... Select any part of your text to access the formatting toolbar.

Get your free Sales Report for ‘Six-year rule’: How rentvestors can avoid capital gains tax

Get your free Sales Report for ‘Six-year rule’: How rentvestors can avoid capital gains tax

Subscribe to hear the latest

Start The Conversation Today.

Call us on:

1300 850 730

Request a Callback:

Send us a Message:

Privacy Policy

Get your Free Property Guide

Get your free Suburb Report for ‘Six-year rule’: How rentvestors can avoid capital gains tax

Privacy Policy

Who we are

Suggested text: Our website address is: https://motionproperty.com.au.

Comments

Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection.

An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: https://automattic.com/privacy/. After approval of your comment, your profile picture is visible to the public in the context of your comment.

Media

Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.

Cookies

Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year.

If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser.

When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select “Remember Me”, your login will persist for two weeks. If you log out of your account, the login cookies will be removed.

If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website.

These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue.

For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where your data is sent

Suggested text: Visitor comments may be checked through an automated spam detection service.

Get your Free PDF copy of Make Money Simple Again