Tax Q&A: More Questions On CGT Exemptions, Answered

If you are happy to see if your question is answered in our magazine or on our website, please email your question to: editor.yipmag@keymedia.com.au

However, if your question is important and you would like advice right away please enter your question here,

and one of our trusted tax professionals contact you ASAP.

Q: I have a situation that I am confused about. I have been told that I am exempt [from capital gains tax] by the tax office, but that I am not exempt by my accountant, and I’m hoping for answers.

I bought a property for $350,000 in 2007 and lived in it as my main property until 2011. I then rented it out and moved back in in 2013. I rented it out again from January 2015, and then sold it in December of that year, with the tenants still in place.

Both times we moved out we lived with family members, so another main residence was not purchased or rented.

We made a profit on the sale of the house, but the ATO advised that that doesn’t really matter anyway when looking at the six-year exemption rule. Please help me! I’m so confused!

- Thanks, Dimity

A: Your situation is clear based on your facts. When you first acquired the property, it was your principal place of residence. You lived in it, subsequently moved out and then rented the property.

As a general rule, a dwelling stops being your main residence for capital gains tax purposes once you move out. However, you can choose to keep treating the dwelling as your main residence after you move out. If you generate income from the dwelling, then the period that  you can do this for is limited to six years. If no income is generated by the property, then the period that the property can be your main residence is indefinite.

Your first period of absence was for one to two years. In these circumstances you can choose to continue to treat the dwelling as your main residence. The sixyear period that you can be absent is restarted by your new period of occupation.

You moved out again and sold the dwelling within 12 months, with a tenant in place. Again, during this period you can choose to keep treating the property as your main residence under the six-year rule.

There is no obligation to move back into the property before any sale. Any profit you make on this transaction would not be taxable as the property remained your main residence and would not be affected by the rental periods because of the six-year rule.

You can only have one main dwelling at a time. In your case, you did not acquire any other property while your home was being rented out and producing an income, so this does not need to be considered in your case.

If you did acquire another property as your main residence, one of the properties would have been exposed to capital gains tax. In situations like this, you need to speak to your accountant in order to investigate the options available to you and develop strategies that you can adopt when dealing with actual and potential tax liabilities.

Need to know

- You can only have one main residence at a time.

- You can choose to keep treating a dwelling as your main residence after you move out.

- If a property remains your main residence, any rental profit will be non-taxable.

Mike Wilson

is principal at Wilson Teis Chartered Accountants