Table of contents
Capital Gains Tax When You Sell Your Home After It’s Been Rented Out - featured image
By
A A A

Capital Gains Tax When You Sell Your Home After It’s Been Rented Out

What are the Capital Gains Tax implications when you move out of your home and rent it out and then sell it?

I love receiving questions from our readers -Victor sent in this one:

 “I moved out of my principal place of residence, which I’ve been in for seven years, and then rented it out for three years. 29117532 - piggy bank following money to a house isolated on a white background

I plan to sell it.

Do I have to pay capital gains tax? Do I need to move back in to sell it so I can get some exemption?

The main reason I want to sell it is to avoid capital gains tax and minimize my yearly land tax.

I plan to put some of the money into my self-funded superannuation fund so I can buy under that scheme.”

Here's was my reply:

In summary, you can retain your main residence exemption for up to six years once you move out unless, of course, you’ve identified another property as your main residence.

You can only have one residence for tax exemption at a time.

The beauty of it is you don’t have to identify which residence until you sell one.

Then you do the numbers and you work out which property gives you the best tax advantage.

The ATO in this regard is pretty good at it.

To calculate the tax, what we need to do is go back and determine the market value of the property at the time you moved out.

That sets up the cost base to determine the profit on the sale.

You get the selling price less any costs, of course, and you compare it back to the market value on the date you moved out and rented the property.

TAKE OUR 3-MINUTE SURVEYHow do you compare to other property investors?

That creates the profit that we then look at to see how much is taxable.

The way we calculate what’s taxable is we look at the number of days you’ve owned it in total and you compare that to the number of days you had a tenant in there while taking into account up to six years, you can have it as tax-free.

So it’s a proportion of the number of days you had a tenant versus the number of days you owned it, but you only multiply that against the profit based on the market value at the time you sold.

In Victor’s case, because he’s been renting the property out for three years, there will be a small amount of tax involved.

There is still a 50% reduction on the tax because you’ve had that more than 12 month, and you actually can put part of that profit into super.

Super is taxed at 15% compared to Victor’s maybe higher marginal tax rate. save-money-house

But if you’re an employee, you can only put that money into super via a salary sacrifice, and the only way you can do a salary sacrifice is by advising your employer before you’ve earned the money.

You can’t call in on June 30th and say, “Last month’s money that I haven’t received yet, I want to salary sacrifice that.”

You have to salary sacrifice prior to earning the income.

If you’re self-employed, obviously that doesn’t come into the equation.

TAKE OUR 3-MINUTE SURVEYHow do you compare to other property investors?

About Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles
19 comments

Irene I cannot give you specific tax advice on the Internet – that would be very wrong. However I do know that many of our clients set up a Testamentary Trust to pass on their estate to the children. You really should see in the state planning exper ...Read full version

0 replies

Hi Mr Michael, I regular read your comments regarding property news. I hope you can clarify the following for me. I ‘m a retiree. I have a rental property, some shares & some cash in the banks. I have 2 grown up children who are fully employed. ...Read full version

1 reply

Please speak with your accountant, but you should be able to receive a gift of part of the property without tax implications

0 replies
16 more comments...

Guides

Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts