A cause for anxiety in some homeowners is the relationship between Capital Gains Tax (CGT) and selling your home, especially when you're selling within the first year of ownership.
If your life has changed dramatically in the not quite a year since you bought your current home and you now need to sell up, one of your worries may be whether you will be obligated to pay CGT on the sale of your property.
It is not necessarily the case that you will be up for CGT, it depends on whether your home meets the Australian Taxation Office’s (ATO) definition of a "main residence".
Get help to understand Capital Gains tax and selling your home
Since Capital Gains Tax was first introduced in Australia in 1985, complying with the law while minimising obligations has been a source of concern and confusion for investors and homeowners alike.
Because figuring out how to legally minimise your tax burden is not a matter for amateurs, I recommend that you consult a qualified and experienced accountant or financial advisor to help you reduce your tax bill while complying with all applicable legislation.
That said here is some information to help clear the air about CGT and selling your home.
When I sell my home will I have to pay CGT?
The good news is that you will be exempt from paying Capital Gains Tax on your home if it has been your main residence for the whole time you have owned it.
According to the ATO: “… there is no minimum time a person has to live in a home before it is considered to be their main residence”
If the home was not your main residence for the whole time you owned it (for example, if you rented it out while you lived overseas for a time, or moved out while you undertook major renovations), provided it was your main residence for three months before you sold it, you will probably be eligible for a partial exemption of CGT.
If the house was a development project, but was not your main residence at any time, then CGT will be payable.
What does the ATO mean by "main residence"?
In simple terms, your main residence is the place you are connected to as your home.
Some of the questions the ATO may ask to support this definition follow:
- Does your family live there?
- Do you keep your personal effects there?
- Do you have your mail delivered there?
- Are you registered at that address on the Electoral Roll?
- Do you have utilities connected there in your name?
- What is your intention regarding occupying the dwelling?
As you can see, the answers to many of these questions can be easily determined by investigation and backed by evidence.
Do not give in to temptation
Do not be tempted to try to beat the system by pretending to live in a particular main residence when that’s really not the case.
You will be caught out and face fines for failure to comply with the law, as well as losing any tax saving you may have gained by such subterfuge.
All our McGrath Real Estate agents are familiar with the ins and outs of Capital Gains Tax and property.
While our area of expertise is not taxation advice, we can advise you on the consequences of putting your home on the market at a given time so you can be informed when meeting with your financial advisor.