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.
What are the Capital Gains Tax implications if I subdivide and sell part of the property?
- 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 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.
What are the Capital Gains Tax implications if have a tenant from time of purchase?
- 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.
What are the Capital Gains Tax implications if I move out and lease my home?
- 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.
What are the Capital Gains Tax implications if I build a granny flat and rent it out ?
- 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.
What can you do about this?
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