Generally speaking, you do not have to pay capital gains tax (CGT) on any capital gain you make when you dispose of your main residence. But how do you prove that a certain property is your main residence? A recent decision by the administrative Appeals Tribunal has shed light on the requirements needed to satisfy the CGT principal residence exemption.

The case concerned a taxpayer who, after agreeing to live with his ex-wife in a home they built together for the sole purpose of avoiding CGT being payable on the sale of the property, was ordered to pay over $65,000. In addition to not being able to satisfy the requirement that a taxpayer buying land for the purpose of building a house move into such house as soon as practicable after the completion of it’s construction, the Tribunal found that the principal residence exemption could not apply in this instance because the property was not the taxpayer’s main residence.

The Main Factors

• The length of time that the taxpayer lived in the house;
• The acts of the taxpayer in moving his personal belongings into the house;
• The address to which his mail was being delivered;
• The connection of services (e.g. electricity and gas) to the house; and
• The taxpayer’s intention to occupy the house.

Essentially, the taxpayer could not produce sufficient evidence of two elements that need to be proved in order for the CGT principal residence exemption to apply; he failed to produce vital documents and relied too heavily on statements given by his friends and family.

While not relevant to this case, taxpayers are also being caught out by the ATO in relation to their CGT obligations in circumstances where;

• They have two properties that could be regarded as their main residence;
• The death or divorce of a family member has resulted in a property becoming a main residence;
• They have already purchased a new home before the old home is sold; or
• They use their principal residence to produce assessable income.

If this article makes you question your CGT obligations, or you wish to know what documents you need to prove that your home is your place of principal residence, please don’t hesitate to contact one of the experienced tax lawyers and accountants here at The Quinn Group today. Call 1300 784 667 or submit an online enquiry.