Cgt Benefits a Winner for Homeowners

Capital gains tax benefits even apply to the family home when it's rented out.

The capital gains tax exemption for a person’s home is extremely valuable, and as I have learnt, very generous.

In a recent article I placed too conservative an interpretation on section 118-145 of the Tax Act that extends the exemption. The exemption even applies when someone rents out their home.

This extension was primarily inserted to cover people who had to leave home for work purposes.

To be eligible for the extension of the residence exemption, a taxpayer must have occupied the property and used it as their main residence.

There does not appear to be any minimum length of time that is required for this period of occupation.

After having used the property as your main residence you can choose to treat it as your main residence even if you stop living in it.

If you make this choice there is no mechanism in place that requires the Australian Taxation Office to be notified of this choice.

For this exemption to apply you cannot have another property that is your main residence, for tax purposes.

If the property is not used to produce assessable income the exemption will last for as long as it is owned.

If the property is rented out the exemption will last for six years.

Another six-year exemption period will apply if you cease renting at the end of the first six-year period, live in the property again, and then relet the property.

The maximum six-year period applies even if you never return to the property and sell it.

This exemption applies whether you have shifted within Australia or have moved overseas.

Q. We have been living overseas for seven years and have a townhouse that was our primary residence for about one year and we then moved to Hong Kong. We have had tenants in our property for seven years. Is it better for us to move back in and make it our primary residence again to limit the capital gains?

A. You will not have to move back to Australia and live in the townhouse to benefit from the main residence exemption. If you sold it now your ownership period will have been eight years. Counting the one you lived in the property, and the six years you can claim under section 118-145 of the Tax Act, seven eighths of any capital gain you make would be exempt.

Q. We bought our house in Sydney in 1999 for $240,000 and lived there until December 2002. We moved to California and rented our house from January 2003 until the present. It has a market value now of $450,000. What tax exemptions apply considering we are both non-residents for tax purposes? How do you calculate CGT in this scenario?

A. If you sell the property now you will have owned it for 11 years. Counting the six years exemption, while it was rented, and the three years that you lived in it prior to leaving Australia, nine elevenths of the capital gain will be tax-free. You will pay tax on half of the remaining gain at the tax rates applying to non-residents.

Q. My wife and I have owned our primary residence in Sydney since 1990. We left for overseas employment in 2007. We return to Australia after eight years in 2015. If we sell our home, what proportion of the gain is subject to capital gains tax?

A. If you sell your home before the six-year period expires none of the capital gain would be assessable. If you sold it after your return in 2015 you pay tax on two fifteenths of the gain.

Latest NewsCgt Benefits a Winner for HomeownersSaturday, 22 April 2017

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