Generally, you don't pay capital gains tax (CGT) if you sell the home you live in (under the main residence exemption).
And in return, you can't claim income tax deductions for costs associated with buying or selling your home.
But sometimes things change.
You rent out your home for a while, you subdivide your property, you build a granny flat, you move out and move back.
What does all this mean for your Capital Gains Tax obligations?
These are some of the most common questions we receive on our blog at Property Update.
So to answer your common Capital Gains Tax questions I had a chat with Australia’s leading tax strategist Ken Raiss, Director of Metropole Wealth Advisory
- Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
- Also read:How long will Australia’s rental crisis last?
- Also read:Predicted House Prices for Australia in 2030
- Also read:This week’s Australian Property Market Update – Latest Data, State by State February 27th 2024
- Also read:5 ways I’m going to ensure my property investments outperform this property cycle
- Main Residence Exemption only applies to the land the dwelling occupies
- If you subdivide and sell part of the land then the sold land is not part of your main residence and its value is excluded from the exemption
- The sold land’s capital gains is the net sale price less the proportional value of the original purchase price. Any new dwelling on the sold land is included as part of the costs.
- If there was a dwelling on the land at the date of original purchase then the dwelling value is taken off to calculate the total land value at purchase to then determine the proportion applicable to the sold land.
- One of the requirements to receive the full main residence exemption is to use and occupy the dwelling as your home.
- If there is a tenant at the time of purchase then you have not occupied the dwelling as soon as practicable and therefore the full exemption will not apply.
- If there is a tenant at the time of purchase the total ownership period is split to determine days with a tenant and this proportion is taxable if the dwelling is sold.
- The benefits of the six-year rule still apply whether there was a tenant at purchase or you moved in straight away.
- If you move out of your home you can still claim part of the capital growth after you move out as tax-free.
- The six-year absence rule allows you to have the capital gains tax free for up to six years after you move out
- You can only claim one dwelling as your main residence for tax.
- If you have multiple properties that were your home then at the time of sale of one of them you need to advise the Tax Authorities which dwelling you will identify under the Main Residence Exemption.
- If you are receiving income from your home then you will lose part of the Main Residence Exemption. This applies to operating a business out of the property of renting part of it including a granny flat.
- If you have not moved out of the dwelling then you do not have access to the six-year absence rule.
- The proportion of the total property or dwelling used to generate income will be taxable on sale
- Using your home for income purposes may also trigger a land tax liability depending on the State and circumstances
Clearly the advice in this blog and in the video is general information and you should seek advice about your own personal situation from a qualified tax advisor.
Of course, you should keep all the records relating to your home so that if things change you don't pay more tax than necessary.
Metropole Wealth Advisory can review your structure, make recommendations and then implement any required changes.
If you’re looking for independent expert advice about you your financial circumstances why not allow Ken Raiss to provide you with a Strategic Wealth Plan?
Imagine the benefits of having a new level of support, guidance, and insights into the critical drivers of your wealth:
- Minimise Your Tax
- Build Your Wealth
- Manage Your Risk
- Create Your Legacy
Click here now and we’ll be in contact to discuss how we can help you and your family.
ALSO READ: A complete guide to Capital Gains Tax