Does a CGT exemption apply to you?
Are you thinking of selling your property? Before you do, you should familiarise yourself with Capital Gains Tax (CGT) and determine whether any exemption applies to you.
A capital gain or loss on an asset is the difference between how much it costs you to purchase and the amount you receive when you dispose of it. Tax is payable on your capital gains.
All assets you have acquired on or after 20 September 1985 are subject to CGT unless they are specifically excluded. You may not be liable for CGT when selling your property if one of the following applies to you.
Principal place of residence
This is the most commonly claimed exemption. A capital gain or loss that you make on your principal place of residence is generally exempt. The exemption applies so long as the dwelling has been used mainly as residential accommodation and the land it is located on is less than 2 hectares in size.
Please note that only one property can be claimed as a principal place of residence at any one time. However, there are some exceptions that may apply as will be detailed below.
Six month rule
Under this rule, you are permitted to hold two primary places of residence for up to 6 months. This is available in a situation where you acquire a new home before disposing your old one. You will be eligible for this exemption if:
- you occupied your old home and it was your principal place of residence for a continuous period of at least 3 months out of the 12 months prior to you disposing of it;
- you did not use the old home to produce assessable income in the 12 months when it was not your principal place of residence;
- your new home has become your principal place of residence.
The exemption will apply to both properties if you are able to dispose of the old home within 6 months of acquiring the new one.
Six year rule
If you decide to vacate your home for a period of up to 6 years and rent it out, you may be eligible for a CGT exemption. You may wish to do this so that you can accept a job interstate or go on an extended holiday. However, the exemption will only apply if you do not treat any other dwelling as your principal place of residence for that same period.
If none of the above applies to you then you may still be eligible for a discount on your CGT liability. Individuals that hold a property for more than 12 months will receive a 50% discount on their CGT liability.
If you require any further information or assistance in determining your CGT liability, please contact our team of tax accountants at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.