Capital Gains Tax and property – the sleeping giant

tax-propertyFrom time to time we get questions relating to Capital Gains Tax (CGT) and property. Here is an example of a common situation:

I bought my house in 2008 and expected to move in straight away, but there were tenants in the property and their lease still had 8 months to go. I waited for the lease to expire and then moved in. I have lived there ever since and plan to sell later this year. Will I qualify for a full CGT exemption?

This is a very common situation but it is probably overlooked much of the time. Unfortunately, you would not qualify for a full exemption in this case.
The main residence rules allow you to treat a property as if it has been your main residence since settlement date as long as you actually move into the property as soon as practicable after settlement. This is intended to cover situations where there is some delay in moving into the property due to illness or some other “reasonable cause”. The ATO’s view is that this rule cannot apply if you are waiting for existing tenants to vacate the property.

This means that some of the growth in value of the property will be subject to tax. It will be important in this case to gather as much evidence as possible of non-deductible costs that you have paid in relation to the property such as stamp duty, legal fees, commission paid to real estate agents, interest, rates, insurance, etc. This will help to reduce the amount of the gain that is subject to tax.

For further information regarding Capital Gains Tax and property, please send us an enquiry or call us on (03) 9878 1477 today.

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