Tax Tip 86: Don’t be so fearful of generating income from the main residence

Note that this tip can apply to situations where the main residence has never been income producing but it subject to CGT because of other reasons such as claiming the main residence exemption on another property for part of the period.

 

This tip certainly applies in many other instances

- Where home has been used to produce ANY income. eg one nights airbnb, even just a single room
- Where home has been a place of business even for a short period of time
- Choosing an alternative main residence
- New spouses where the two may each have owned and lived in different property
- Sometimes when tax residence changes

Important that the interaction with s118-192 is understood since s118-192 CANNOT be used in the above examples. And therefore all the non-deductible costs from the past may suddenly be relevant where a taxpayer didnt think it was important

 

"If you lived in the property for 15 years then the percentage subject to tax would drop = 5/20 = 10%"

Is this a typo?

 

Well spotted Paul, yes an error, it should be 25%.
General principal remains the same though.

 

It's very feasible that you will pay more in tax than you ever received from a boarders income

 

Hi, Just to double check.
If I knockdown the old IP and build a new house on it and becomes my PPOR.
The rules here still applies right?

I thought maybe its a new house and the new house becomes my PPOR from day one... I may not have to pay CGT at all...

 

You can't get away from CGT that easy! It would be subject to CGT and need to be apportioned.

 

Yes, I was just double checking , making sure not making any mistakes.

 

You will have two CGT assets. 1. Land and 2. New dwelling.
Each has a distinct cost base and acquisition date.

There is a complex issue concerning apportionment and it is necessary to have a valuer determine an APPORTIONMENT of the value (but not the value itself !! ) at the time the property commences to be your main residence. This will be necessary later so that the sale proceeds can be apportioned between the land (pro-rata between IP / main residence based on days) and the house which may be exempt for the whole period between when the land ceased being held for the IP and commenced being held for the main residence.

 

So, in regards to my first owner property, does that mean that if I rent my place 100 days during 10 years (AirBnb), I only need to pay CGT on the 100 days that got rented when selling out the place?

 

No

 

No but it may be a factor to alter how its calculated and sometimes CGT is based on pro-rata time AND also other apportioning factors

 

This thread is relevant too
Tax Tip 318: Can you Claim 3rd Element CGT Cost Base Expenses while living there? http://bit.ly/3qX9Nsm

 

So just after a fast answer. If I was to Airbnb a room in my place just for the Taylor Swift concerts, how much impact would it have for CGT for my main residence? Owned since early 2016.

 

I wouldn't do it at all.

 

It all depends on the circumstances