CGT, GST & Tax Deduction

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Question: I’m 23 and I bought my first property a couple of weeks ago. It’s a duplex site, so hopefully in the next year or two I’ll be looking at building a dual occupancy on the property. My question is: do I pay CGT if I live in it for three months then sell it? Also, if I live in it for three months then rent it, do I still pay CGT if I sell it after it is rented?

Answer: Provided that you have nominated this property as your main residence on purchase and you hold the property in your own individual name, it will be exempt from CGT if you live in it for three months and then sell it. 

Alternatively, if a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. If you use your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence is six years; however, you cannot treat any other dwelling as your main residence during this period. 

Please note, however, that if the intention is to obtain a tax benefit, the ATO may still treat the capital gain as assessable if you sold the property at a later date. Where your initial main residence is used for the purpose of producing assessable income and you have nominated a new main residence, your initial main residence will be assessable for CGT if you sell the initial main residence in the future.

– Angelo Panagopoulos

Question: How is GST calculated when selling through an auction? How much GST is charged on the vendor, auctioneer and buyer?

Answer: When selling a property (either through an auction or private sale), there are many variables and factors that come into consideration in relation to GST. In general, unless a specific exemption applies (eg for the sale of going concern), sales of ‘real property’ are GST taxable; and, for example, residential premises, premises used predominantly for residential accommodation, that are not commercial residential and not new residential premises, are input taxed, which means that GST does not apply. Therefore, the GST status of real estate depends on whether the premises are new, residential or commercial. 

The sale of new houses is subject to GST, as is the sale of commercial residential premises such as hotels. Specific rules also apply to taxpayers such as property developers to calculate their GST on a ‘margin basis’. If vacant land was sold as part of a property developer’s business, GST would apply, but a non-business private sale would not be taxable.

Where there are partial residences (for example, a building consists of a ground-floor shop and a first floor where the owner lives) and the owner sells the building, GST on the sale will only apply to the shop. The sale of new residential premises normally attracts GST, which means that GST may be payable if the vendor is registered for GST. This will typically apply to builders and property developers. Substantial renovations to premises previously sold as residential premises may qualify as ‘new residential premises’, and GST applies.

Another example is where a property developer builds and sells new homes – these will attract GST. However, if the property developer keeps the homes as rental properties for a period of six years and then sells these homes, GST will not apply. In relation to the auctioneer, as it is most likely that their real estate agency will be registered for GST, the auctioneer will therefore charge GST on their services and commissions, which are usually paid by the vendor.

– Angelo Panagopoulos

I have bought a block of land and am building a house as an investment property. I’ve been told by my accountant that all the associated costs for the land and while we are building the house can be negatively geared. Can you confirm this? People I speak to keep questioning this information.Assuming this is true and we claim the tax deduction, is there a period of time we would need to rent the property for, before we could legitimately move into it ourselves? At some stage we may sell our own home and, when we do, we may want to move into the smaller investment property. I don’t want any problems with the ATO.

Answer: Provided the purpose (or use) of the loan is to finance the purchase of an investment property that you intend to derive assessable income from (as soon as possible once construction is completed), the interest payments and other associated costs you incur during construction will ordinarily qualify as a tax deductible expense. You can continue to claim a tax deduction as long as the investment property is used to derive assessable income. If you decide to reside in your property at a later date, you can no longer claim a tax deduction

Note: If you sell your property in the future, part of any capital gain you may make on the sale may be liable for capital gains tax.

– Jimmy Prince

The experts

Angelo Panagopoulos 
Angelo is a partner at Wilson Pateras Chartered Accountants, specialising in property and taxation, asset protection and ownership structures. Angelo has assisted many clients over a number of years with their property-related requirements. Visit

Jimmy B Prince FCPA
Jimmy is a former lecturer and tutor in income tax law at La Trobe University, and teaches a number of wealth creation courses for the CAE in Melbourne. He has authored several investment books including Tax for Australians for Dummies, Shares and Taxation, Property and Taxation and Superannuation and Taxation. In his earlier years Jimmy worked for the Australian Taxation Office and consulted to CPA Australia.

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  • Andrew says on 24/04/2014 12:00:31 PM


    I purchased some land a few months ago and have commenced building a house. To avoid CGT I need to live in the home for 12 months, but was wondering does this start from when I purchase the land, commence the build, finish the build and move in?

    Thanks, Andrew

  • Hamish says on 02/12/2015 08:50:38 AM

    The interplay between CGT, GST and deductibility of interest is interesting.

    Assuming I am developing a block for the purposes of selling, my understanding is that:
    - GST is claimed on construction costs and then paid on eventual sale using the margin scheme
    - CGT - provided held for > 12 months, 50% discount may apply but can depend on whether you are making a business of it (in which case the property could be trading stock and no discount applies)
    - interest deductibility - ?

    Alternatively, assuming I am developing a block for the purposes of renting long term (> 5 years), my understanding is that:
    - no GST implications (don't claim / pay) if held for more than 5 years
    - CGT discount of 50% should apply as held > 12 months
    - interest is deductible as per the original post

    Appreciate some clarification as to when interest is and isn't deductible.

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