The CGT exemption rule on the principle place of residence (“PPR”) is still confusing to many people.

Ordinarily, when you sell your own home where you lived in, you do not pay capital gains tax on the profit you make when you sell years later. If you move out of your home and be absent for up to six years, CGT is exempt here also. For example, where you are required to live overseas or interstate for a lengthy period of time (i.e. up to six years) and your home is vacant in all that time, then CGT is not payable if you decide to sell the home.

However, if you bought a new home, moved in, and rented out the old home, then the CGT exemption rules may not be so clear. Ordinarily, you would elect the new home to be your PPR from the day you moved in. 

If you decide to keep the old home, rent it out and then sell it at a later date, CGT arises from the date you rented it. A valuation on that property is required to reset the cost base, so that if you sell it later on, then you only pay CGT on the difference between the sale price and the market value set at the time when the former home became a rental property. Note that if the old home is kept but not rented out, the resetting of the cost base to market value will not apply.

Another quirk in the rules is if you bought a home and rented it out first and then moved into it later as your PPR, then CGT only applies to the rental period of ownership.

There are a number of complex scenarios that could occur surrounding your PPR, and it is always important to seek appropriate tax advice before you do anything to ensure unintended CGT liabilities do not arise in the future.