If you think Capital Gains Tax is straightforward, think again!

Capital gains tax regarding your main residence is straightforward, right? If you live in it, no CGT. If you make income from it, you pay CGT when you sell.

You’d think it would be that simple, but of course, it’s not.

It is correct that your main residence is exempt from capital gains tax if you or your family live in it, it hasn’t been used to produce income, and is on 2 hectares or less.

If you meet these conditions, you do not pay tax on any capital gain when you sell your home, and you ignore any capital loss.

But what happens if you have more than one property, for example a holiday house, and you split your time between the two residences? 

For capital gains tax purposes there is the 6-year rule. Usually, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence for up to 6 years even if it's used to produce income, such as rent. But if you do rent it out, you can only claim a partial CGT exemption.

If you don't use your former home to produce income and leave it vacant you can treat it as your main residence for an unlimited period after you stop living in it. This only applies if you aren't treating another property at the same time as your main residence.

This is complex law, and depending on your circumstances you may need to seek advice, or request a private ruling from the ATO.

As always, if we can help, get in touch.