Tax Q&A: Your Tax Questions on Capital Gains, Answered

By Sarah Megginson | 06 Jul 2017
Our tax experts are on hand to answer any tax queries you may have regarding your property investments and wealth creation strategiesEmail your tax questions to - [email protected].

Q: We are selling our primary place of residence this financial year after 13 years and are moving into our investment unit, which we bought years ago. 

It has been rented and negatively geared since purchase. 

The unit will become our primary residence. What are our tax liabilities on any capital gains the unit has made from purchase until now – how are they calculated and when is the capital gains tax due to be paid? We do not plan to move out of the unit until we are retired; does this make a difference to the amount of capital gains tax due? Thanks in advance.

A: Based on the comments in your question, we assume that you have lived in your principal place of residence continuously during the 13 years you have owned it (Property A).

In relation to the unit you have purchased and have been renting out(Property B), because you did not live in the property first you cannot elect to use any of the tax concessions available to treat the property as your primary place of residence. 

You can, however, apportion any future capital gain on the unit. This is calculated by working out the number of days that the property was an investment property compared to the number of the days the property was your principal place of residence.
You have indicated that you intend to live in Property B until retirement, therefore you should note that the longer the property is your principal place of residence, the smaller the portion that will be taxable when this property is eventually sold.

“The longer the property is your principal place of residence, the smaller the portion that will be taxable”

The great thing about the tax concessions available is that if you hold two properties at once, and lived in both first upon purchase of the property, you can elect which property is your principal place of residence after the fact and look at alternative scenarios to give you the best result. I suggest you have a meeting with your tax advisor to work through not only your current scenario but future scenarios as well, so you can get an idea of the potential tax consequences in the future.

David Shaw
is CEO of WSC Group and has over 25 years’ business experience and extensive knowledge of commerce, industry and public practice accounting.

While due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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