Navigating New Changes: The Temporary Absence Rule and Market Value Rule
When you move away from your main home, Australia's tax laws allow you to still consider it as your primary residence under certain conditions, potentially saving you on taxes when you sell. This is known as the "temporary absence rule." Here’s how it works and what’s changed:
Temporary Absence Rule:
- If the property is not rented out: You can continue to treat it as your main residence indefinitely, even if you're not living in it.
- If the property is rented out: You can still treat it as your main residence for tax purposes for up to six years.
However, if you become a non-resident for tax purposes, these benefits will cease if you sell the property while you are a foreign resident, regardless of whether you were temporarily absent. If you return to Australia and regain your tax residency before selling, then the rule can still apply.
Market Value Rule:
This rule comes into play if you start using your main residence to generate income (like renting it out) after August 20, 1996. Under this rule, for tax purposes, the property is considered as if you acquired it at its market value at the time you started renting it out. This can be beneficial because it might reduce the capital gain (profit) that is subject to tax when you sell.
To benefit from the market value rule:
- The property must have been used to generate income.
- You would have received a full exemption from capital gains tax if you had sold the property just before it was first rented out.
However, similar to the temporary absence rule, if you are a foreign resident when you decide to sell, you typically won’t qualify for this tax relief under the current laws.
Key Takeaway: For foreign residents, it’s crucial to understand that being a non-resident at the time of selling your Australian property affects your eligibility for these exemptions.
If you have questions or need further clarification, please contact Tax Ideas Accountants & Advisers at +61 2 83181545, or you can book an appointment directly on our live calendar.
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