Question: I’m about to sell my property and am looking for help on my capital gains tax situation. The problem is that I have had people paying board in my own property to bring in some extra cash and need to work out how much of my capital gain on the house is now subject to CGT. 

I had one tenant for 30 weeks and one tenant for 47 weeks, with an overlap of about two weeks in the middle (I have two spare rooms, but only really wanted one boarder at a time). I’ll have had the property for six years when I sell. Is there a formula for working out how much of my capital gain will be taxable? And what rate of tax will I pay? 

Answer: Ordinarily your main residence is exempt from capital gains tax (CGT). To gain this benefit your home must be used primarily for private or domestic purposes, which means you cannot derive assessable income. If part of your main residence is used to derive assessable income (for instance you lease two rooms) you’re only entitled to a part CGT exemption during the period your home is leased, and a full exemption during the period it’s not lease. 

The portion that’s liable to CGT is normally determined on an area basis and time basis. For example, if your home consists of ten rooms and you use two rooms to derive assessable income over a 30 weeks period, under these circumstances, 20% of your maintain residence is liable to CGT during the 30 weeks the property was leased. Complications can arise where these variables (as in your case) are not consistent. 

For more information you can read Tax Office publication ‘Is the dwelling your main residence’, and more particularly the section that sets out the formula for ‘Calculating a part exemption’. You can download a copy from the Tax Office website (www.ato.gov.au). 

Incidentally, as you had owned the property for more than 12 months (in your case six years), only 50% of the portion of the capital gain you make on sale is liable to tax at your marginal rates of tax (which can very between 0% and 45%) plus a 1.5% Medicare levy. As this is a rather complex calculation (especially in your case) its best that you seek advice from a registered tax agent. 

  • Answer provided by Jimmy B Prince, LaTrobe University