If you sell a capital asset, such as real estate, you usually make a capital gain or a capital loss. This is the difference between what it cost you to acquire the asset and what you receive when you dispose of it. You need to report capital gains and losses in your income tax return and pay tax on your capital gains. All assets you’ve acquired since tax on capital gains started (on 20 September 1985) are subject to CGT unless specifically excluded. Foreign residents make a capital gain or loss if a CGT event happens to an asset that is 'taxable Australian property'. In fact, most personal assets are exempt from CGT, which includes the main residence exemption for CGT of selling property.
Main residence exemption
The main residence exemption means that there is no capital gain or capital loss made from a CGT event that relates to a dwelling that is the taxpayer’s main residence.
The main residence exemption will not apply where:
• the residence was only a main residence for part of the ownership period, or
• the residence was used for the purpose of producing assessable income.
More than One Residence
If a taxpayer owns more than one residence that qualifies as a main residence, they must choose which one is the main residence for CGT purposes. This choice occurs in the income year where the CGT event occurs in relation to the dwelling.
Where a taxpayer has a main residence and acquires another dwelling that is to become the new main residence, then both dwellings are treated as the taxpayer’s main residence for the shorter of:
• six months ending when the ownership interest in the existing main residence ends, or
• the period between the acquisition of the new ownership interest and end of the old ownership interest.
This change of main residence exemption only applies where the existing main residence was used as a main residence for a continuous period of at least three months in the preceding 12 months, ending when the taxpayer’s ownership interest in it ends and it was not used for income-producing purposes during that 12-month period.
Generally, a taxpayer can treat the dwelling as your main residence for:
• up to six years if it is used to produce income
Claire Chang