Tax Q&A: Will I be fully exempt from CGT?

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Q: I bought a house on 20 December 2017. My stamp duty was discounted as it was my first house, and I have lived there since I bought it. My intention now is to rent out the house and rent a place closer to my work. I will change all my addresses to my new rented place, assuming that is OK and my first house will still be treated as main place of residence for tax purposes.

I do have the following concerns:

  • One of the requirements of the first home buyer’s stamp duty concession is that the buyer can’t rent out any part of the property. Does that rule apply in Victoria?
  • If I sell the house in the next six years, I will still be exempt from paying CGT. Is it still recommended to get a valuation of the house before renting it out? If yes, in what scenario could it be useful? What type of valuation would be required?
  • I have received a job offer and may decide to live overseas for two to three years. Then I will return to Australia and sell the house without moving in. Will I still be fully exempt from CGT?

Thanks, Artin

A: I will address each of your questions in turn below:

  • Given that you have already received the first home buyer’s stamp duty concession upon acquisition, I will assume you satisfied the base eligibility criteria at that time. A condition to maintain your eligibility for the duty concession is that you must live in your property as your principal place of residence for a continuous period of 12 months (commencing within 12 months of settlement). As you have now been living in the property for more than 12 months, you are able to rent it out and this will not impact on the concession you received.
  • So long as no other property that you own becomes your main residence during the rental period of up to six years, the capital gain realised on the sale should be exempt from CGT. Not being in Australia during part of the six-year rental period would not impact on your ability to claim the main residence exemption.

It is still recommended that you get a valuation at the date you first make the property available for rent. This valuation will be required if you end up renting the property for longer than six years. The value will be your new cost base and is required when calculating the taxable gain/loss.

As you have now been living in the property for more than 12 months, you can rent it out without impacting the concession

For example, assume that you end up renting out the property for eight years. The capital gain/loss will broadly be calculated by looking at the sale proceeds less the value of the property at the time you first made it available for rent. The taxable gain will be reduced by 6/8ths, being the six-year main residence exemption period divided by the total eight-year period in which it was available for rent.

With regard to the type of valuation required, for tax purposes the acceptability of a valuation usually depends on the valuation process undertaken rather than who conducted it. For your purposes, a valuation provided by a local real estate agent should be sufficient.

Need to know

  • You must live in your principal place of residence for 12 months to qualify for the stamp duty concession.
  • You may rent out your property after living in it continuously for 12 months.
  • You should get a valuation when you first rent the property out.


Ryan Smith
is financial advisory partner at PwC

 

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