Generally the main residence is exempt from capital gains tax (CGT). To get the exemption, the property must have a dwelling on it and a taxpayer must have lived in it. A vacant block of land is not entitled to the exemption.
A taxpayer is eligible for a full main residence exemption if the dwelling:
- has been the home the whole period of ownership,
- has not been used to produce assessable income (i.e was not used to run a business from it or rented it out), and
- is on land of two hectares or less.
If the full exemption applies any capital gain or loss is disregarded – you don’t pay tax on any capital gain, but nor can you use any capital loss to reduce your assessable income. Alternatively, you may be entitled to a partial exemption.
From 9 May 2017 the Government removed the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.
However, existing properties held prior to this date will still be eligible for the main residence exemption until 30 June 2019.
Interestingly, the partial main residence exemption also no longer applies if, at the time a CGT events occurs the individual that owns it is a foreign resident. For example,
John acquired a dwelling on 20 August 2010. On 13 November 2019 John signs a contract to sell the dwelling and settlement occurs on 11 December 2019. At this time he was a foreign resident. John was renting it out from when he acquired the property until 5 June 2011. Then it was his main residence for 8 years. John left the property vacant from June 2019 until it was sold. From 19 June John resided in London.
As John was a foreign resident at the time of the sale of the sale of the dwelling he is not entitled to the main residence exemption in respect of his ownership interest in the dwelling, even though he used the dwelling as his main residence for part of the time that the owned it.
If you require any further information or assistance in determining your CGT liability, please contact our team of Tax Lawyers and Tax Accountants at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.