Question: My partner and I moved out of my PPOR in Nov 2010 and into a new home in her name. I paid $185,000 in Aug 1997 and the value at November 2010 was $570,000. The house is now under contract for $520,000. I owe $149,000 on the property. How is CGT calculated? Can I claim a capital loss or is profit apportioned over time? Can I lay claim to renting a room from my partner and pay no CGT?
Answer: CGT arises when the sale price of a CGT asset (such as a property) is more than its cost base. If you sell a property within 12 months of buying it and you make a capital gain, the entire amount is liable to tax at your marginal rates of tax (which can vary between 0% and 45%). But if you sell the property 12 months after buying it; only 50% is taxable. The balance is exempt and excluded from your assessable income. On the other hand a capital loss arises when the cost base is more than the sale price.
Ordinarily your main residence (ppor) is exempt from CGT. To gain this concession your home must be used primarily for private or domestic purposes, which means you can’t use it to derive assessable income. But, if you incur a capital loss; the capital loss can’t be claimed as the property is exempt from tax.
If part of your main residence is used to derive assessable income (for instance you lease a number of rooms to a ‘genuine tenant’ at a ‘commercial rate of rent’) you’re only entitled to a part exemption during the period your home is leased, and a full exemption during the period it’s not leased. The portion that’s liable to CGT is normally determined on an area basis and time basis. For example, if your home consists of 10 rooms and you lease say two rooms to a genuine tenant over a 12 month period, under these circumstances, 20% of your main residence is liable to CGT during the 12 months the property was leased. For the taxation treatment of ‘non-economic rental and share of residence cases’ you can read Tax Office Ruling IT 2167. You can download a copy from the Tax Office website (www.ato.gov.au).
- Answer provided by Jimmy B Prince, Tax author and lecturer at La Trobe University
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