Many young Australians are complaining about Sydney's unaffordable house prices, but a little-known tax strategy is actually helping a select few of these millennials amass multiple properties. Dubbed as the "six-year rule," this strategy allows first home buyers to become a rentvestor, claim negative gearing benefits while receiving income from a tenant, and sell for a profit incurring a CGT bill.
According to tax law, an owner is allowed to rent out his home for up to six years after he has stopped living in it. He can still treat it as a main residence come time to sell, provided he does not buy another property as a home in the meantime. This strategy is popular among under-30 clients who have in-depth knowledge about the tax system and want to invest but do not want to lose their first home buyer benefits.
"It's a strategy for those who don't want to live there forever but are using it to get into the market," said accountant Jeremy Iannuzzelli. "They buy a house, live in it for six to 12 months, then move back to mum and dad to pay down the debt aggressively." One of his clients actually moved back in and out of a property for 20 years, leaving him with $900,000 tax-free profit.
But home owners first need to establish that they are living in the home first and have the intention to live there. It includes registering on the electoral roll, connecting services, and spending at least 12 months in the home. As a result, only a small minority is utilising this rule.
With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now