Capital Gains Tax (CGT) and Property Sales
When a property is sold, it is a Capital Gains Tax (CGT) asset, meaning you may be liable to pay tax on all, or part of the profits from the sale.
However, there’s an exemption for a property that is your principal place of residence – the home where you live most of the time.
How the ATO Determines Your Principal Residence
The Australian Taxation Office (ATO) will take several factors into consideration when deciding if a house is your principal place of residence, including:
- the length of time you have lived there;
- is it also where your family lives;
- whether your personal belongings are there;
- is it your address on the electoral roll;
- is it the address to which your mail is delivered;
- the connection of gas, telephone, or electricity services;
- your intention in occupying the dwelling.
It’s important to note that if you simply “intend” to live in a house, but don’t actually do so, you will not be eligible for the CGT exemption. You must occupy the home.
Additional CGT Exemption Criteria
To be eligible for the CGT exemption, the ATO will also look at the following conditions:
- the taxpayer is an individual, not a company;
- you are an Australian tax resident;
- the house was your main residence throughout the ‘ownership period’, and
- the house was not transferred to you as a beneficiary in, or as the trustee of, a deceased estate;
- Land adjacent to the house of up to two hectares (including the land immediately below the dwelling) can also be exempt from CGT, when it is primarily used for private or domestic purposes.
If you choose to vacate your home, without selling it, or renting it out, the property will maintain its CGT exemption status indefinitely.
If a couple have more than one house, they must choose one as their principal place of residence. If the couple maintains separate houses, there are special rules that apply, and the CGT exemption will be split.
Sometimes, there might be a gap between buying a house you intend to be your principal place of residence, and actually moving in. In this instance, the main residence exemption applies from the date of ownership, provided that the house was occupied by the time it was first practicable to do so.
Need Help with CGT or Property Law?
If you have questions about property, CGT, or any aspect of corporate law, the specialists at GLG Legal can help you. Contact our office today by calling (07) 3161 9555 to make an appointment.