Tax Tip 246: 14 ways a main residence may not be exempt from CGT

Discussion in 'Accounting & Tax' started by Terry_w, 26th Sep, 2019.

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  1. Terry_w

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

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    Many people assume that a property is exempt from CGT if it is their main residence. In most cases it will be, but not always.

    A person’s main residence will not be fully exempt if:

    a) It was ever Income producing

    b) Interest could be deductible (even if not claiming)

    c) Bigger than 2 hectares

    d) Owned by a company

    e) Held by a trustee

    f) Are claiming another property as the main residence at the same time

    g) Minor children claiming the exemption on a different property to parents

    h) Spouse claiming a different property

    i) Held on revenue account

    j) Didn’t move in as soon as practical

    k) Didn’t live in it for at least 3 months after construction complete

    l) Didn’t construct within 4 years of purchase

    m) Inherited a property that was an investment property of the deceased

    n) were absent longer than 6 years
     
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  2. Gen-Y

    Gen-Y Well-Known Member

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    This one I didn't know
    c) Bigger than 2 hectares
    k) Didn’t live in it for at least 3 months after construction complete

    Edit K - I have misread it as in must moved in after 3 months. It says you must live in it for a minimum of 3 months to qualify for CGT free
     
    Last edited: 26th Sep, 2019
  3. Terry_w

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

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    I recently went to see a client at their home as they lived nearby. They were selling their property and thought it would be CGT. I was there so noticed the size and asked and it was 10 acres or about 4 hectares. I said it wouldn't be CGT free on sale and they were shocked.

    They said their accountant told them it would be. Apparently he had not asked 'how big is it?' and they didn't offer it up. They would have been caught out so it should always be asked.
     
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  4. triquee79

    triquee79 New Member

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    f) Are claiming another property as the main residence at the same time

    How do we technically claim the property, is it a matter of declaring it with your accountant come Tax time? Sorry for my naivety, not sure how this is applied in real terms.
     
  5. Terry_w

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

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    Basically yes. In the year of sale you either count it as the main residence or not. But this can have implications for other properties
     
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    g) Was inherited property and doesnt become the main residence of the beneficiary and is kept for 2 years+ after the date of death

    h) Foreign property that is sold for an apparent loss may be taxable here. eg Irish tax resident moves to AU. House cost $EURO $200,000 10 yr ago. On date they became an AU tax resident in 2016 the market value is $EUR $100K. Sold for $EUR $120K a year later. The CGT costbase is the AUD value of the market value on they date they became a tax resident.

    i) Two spouses who each had a main residence they own at or prior to becoming spouses / defacto etc.

    j) A person who departs Australia and ceases Australian tax residency. Proposed and current laws impact how the gain / loss may be calculated. What was exempt in the past may not be exempt and be stripped of the past exemption. (Subject to laws being passed).

    k) Persons who acquire a matrimonial property asset in a divorce and it isnt their main residence at all times that is was ever owned.

    l) Substantially renovated the property and moved in and contracted to sell within three months but moved out after settlement say 4 months. The key trigger is the contract date not the settlement date. Yes have seen this mistake more than once.

    m) Sale of a subdivision affecting the main residence. Contrary to most opinion the main residence exemption only applies to the home portion. The subdivided portion is treated as NEVER having been subject to any exemption.

    Message = CGT is complex.
     
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