Despite your intentions, if you have applied for a FHNH grant, you are telling the government you are treating this property as your primary residence. To enjoy a stamp duty concession and to receive free cash from the government does not always come effortlessly. It would be wise to understand a few of the basic rules of the scheme, this is because in some extreme cases you may think you are entitled for the grant but may lose out on it partially or totally.
Tightening of laws
Over the past year or so, there has been a fair bit of bad media about people exploiting the first home grants. As such, from heresay, I have come to realise (and it is very believable) the government is starting to crackdown on bogus first home claims.
In this article, I am not here to say what is right and what is wrong, I just want to share what I have picked up from experience and from what people around me has gone through.
Primary place of residence
Outside of the rules stated by the ATO - https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Moving-into-a-dwelling/, for a property is considered your primary residence, the general rule I have gathered (please verify this yourself) is to live in the property for a minimum of 6 months within the first year from settlement. I verified this with my solicitor, you can go as far as moving in 364 days after settlement, though you should live in the property for the next 6 months.
The six year rule
This is an interesting one. You can choose to rent out (wholey) your primary residence for up to six years without it attracting any capital gains tax when you sell the property. The official rules are stated here - https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/. With house prices so high these days, it may be wise for one to consider buying your first property while living at your parents place so you can get on to the property market earlier.
Recently, I came across a story regarding what is considered your primary place of residence. My friend Jane was in an interesting situation. Jane's first home property is about to settle but she has recently decided to study abroad. Jane's intention was to move back to Sydney after she completes her course, her case is justifiable as she did not forsee her study at the time of purchase. Upon completing her course, she intends to move in to the proeprty. Is she deemed to be "moving in as soon as practicable"? I asked my solicitor. His response was "perhaps", her case would have to be assessed manually by the ATO, this means there is a chance she may lose out on her first home grant. What would be smarter is for her to put her study on hold for 6 months within the first year of her property settling and living in the property. Her case will then most likely fall through the less manual process.
- Did you know, you can "refresh" the six year rule? You can simply move back into your primary residence close to the 6 year maturity for a minimum of 6 years and rent it out again afterwards. This way, you get another 6 years worth of CGT exemption.
- If you rent out part of your primary place of residence while you are living inside, you will be liable for CGT at a prorata rate (based on the floor area ratio of the portion rented out and time you rented it out for vs time you held the property for).
- Similarly, if you tax deduct part of your home as a home office, you will be liable for CGT for that portion of your home.
- However, if you tax deduct part of your rental cost (for the place you are tenanting now) you would obviously not accural CGT.
- For new property owners, it may be advantagous for you to rent out your new property and rent out a property to live in. New properties generally attracts a higher rental yield and a higher depreciation, both of which may benefit you greatly. Additionally, claiming part of the property you are renting to live in as your home office has no effect on your primary residence's CGT calculations.