Are you renting out your principle place of residence?


Use the ATO Capital Gains Tax (CGT) property exemption tool to find out what if any Capital Gains are likely to be assessable on sale of the property

One of the main advantages of purchasing a Principle Place of Residence (PPR) is that generally speaking, there are no tax implications, provided you don’t use it to produce income and it’s on 2 hectares of land or less.  You should keep all the records relating to your home so that if your situation changes in the future – for example, you start to rent it out – you don’t pay more tax than necessary.

For many people, over time this can amount to a significant non-taxable windfall.  The flip side of this is that any capital loss you may make is not able to be used to offset future capital gains on other assessable assets.

The CGT exemption assumes that you moved into the property as your main residence as soon as practicable following settlement and that you have not otherwise used the property for income producing purposes during the period of ownership.  Otherwise partial CGT may be applicable on disposal of the asset.

There are however provisions that do allow you to be temporarily absent for the property, rent the property out and claim a tax deduction on expenses and still not affect your eligibility for a full PPR exemption from CGT.  This is referred to as the six-year rule and is worth understanding from a tax planning perspective.

Under this rule, as the owner of the property you are able to use that property to produce assessable income for up to six years without losing the PPR CGT exemption, provided that you, your spouse, defacto or dependent children have not occupied/owned another property during that time that would be considered a principle place of residence.

There are conditions surrounding the exemption from CGT and more information can be found on the Australian Taxation Office (ATO) website.  A link to which follows:

http://www.ato.gov.au/General/Property/Your-home/Buying-and-selling-your-home/Main-residence-exemption-from-capital-gains-tax/

The ATO have also released a CGT property exemption tool/calculator, for individuals who want to find out what proportion of their capital gain is exempt from tax on disposal of their property, the link to which is below:

http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=CGT_and_real_property.XR4&go=ok

 

 

This information is of general nature only and is not intended as a personal advice or tax advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser or taxation adviser who will assist you.