Typically, whenever ones sells an asset, the capital gains tax is applicable on the profit or gain that is made from selling it. The one exception to this rule would be in the case of an individual’s primary residence, and that includes your house.
However, its important to note that there are exemptions to this rule. In this article, we’ll explore questions such as:
- What constitutes as your main residence?
- Could you have more than one residence?
- Can you vacate a property and still claim it as your main residence?
- Will I have to pay CGT if I rent a room on AirBnB?
- And many other questions.
Without further due, let’s jump right in.
What is my main residence?
ATO has some conditions that must be met for one to qualify for the main residence exemption. These include:
- You and your family live there
- You have moved your personal belongings into the home
- This is the address to which your mail is delivered
- This is your address on the electoral roll
- The property is connected to services and utilities (for example, phone, gas, or electricity)
- You actually occupy the dwelling
What about the timeline? Is there a minimum amount of time I have to have lived there before I can claim as the main residence? The answer is no.
If you live on a large block, the CGT exemption normally only applies to the house and land (including the land on which the house sits) up to a maximum of two hectares. The main residence exemption also only applies to a property that includes a dwelling, which is anything used wholly or mainly for residential accommodation.
Examples of a dwelling are:
- A house or cottage
- An apartment or flat
- A strata title unit
- A unit in a retirement village
- A caravan, houseboat or other mobile home.
Can I have more than one residence?
The answer is no. You can only have one primary residence at one point in time. The exception is if you’re selling your old property and buying another. In this case you’re entitled to an overlap period of six months when both properties can be your main residence as long as:
- The new property will be your main residence after the sale of the old property
- You lived in the old property for at least three continuous months in the 12 months prior to sale, and
- The property wasn’t used to generate rental income in any part of the 12 month period that it wasn’t your main residence.
What if I am planning to renovate while living there and then sell the house?
If you occupy the property while its being renovated then chances are that that will qualify as your primary residence. Its important to note that ATO may interpret this, if done more than once, “house flipping” and thus argue that you’re rather a property investor and may require taxes on your profits.
In that case, you may require the service of a knowledgeable investment property accountant that deals with cases like these.
Will I have to pay CGT if I rent a room on Airbnb?
Here is a short case study example for illustrate how this works:
Mack bought a three-bedroom apartment in Brisbane in 2010 for $400,000. To help pay the bills, in 2014, she rented out one of the bedrooms through Airbnb. She estimates that including access to shared areas like the lounge and kitchen, 40% of the floor area is given over to earning assessable income through Airbnb. In 2016, she sells the apartment for $800,000.
Ordinarily, the $400,000 profit on sale of the apartment will be exempt from CGT. However for two years out of the six-year ownership period, she used 40% of the property to earn assessable income. This means that $400,000 x 40% x 33% of the gain ($52,800) of the gain will be taxable.