Tax Tip 120: CGT and moving into an Investment Property

Discussion in 'Accounting & Tax' started by Terry_w, 12th May, 2016.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    9th Jun, 2006
    Australia wide
    CGT and moving into an Investment Property

    When moving into a property that has previously been rented out the main residence CGT is not available in full if the property is later sold. This is because the property was income producing for part of the ownership period.

    How to work out the portion liable for CGT?

    The value of the property when you move in is irrelevant because the Capital Gain or the Capital Loss is worked out based on a formula found under s118-185 ITAA97:

    CG or CL amount x (non-main residence days / days in ownership period)

    Hiu Dong purchased 123 Smith St for $200,000 in 2000. He rented it out for 5 years and moved into it in 2005 when it was worth $600,000. He later sold it for $600,000 in 2010 after owning it for 10 years.

    Hiu think he won’t have any CGT to pay because there was no growth after he moved in. Hiu is wrong.

    The gain in the value is $600,000 - $200,000 = $400,000

    Using the formula:

    $400,000 x 5/10 = $200,000

    (other costs would be used to reduce the CGT payable too, see Tax Tip 76: Calculating the Cost Base for CGT purposes.)

    So $200,000 will be the CG that is taxable. Using the 50% CGT discount this becomes $100,000.

    This $100,000 will be added to his other income.

    s118-185 ITAA97 INCOME TAX ASSESSMENT ACT 1997 - SECT 118.185 Partial exemption where dwelling was your main residence during part only of ownership period