Is Your Principal Place of Residence Subject to Capital Gains Tax?

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Did you know your principal place of residence could be subject to capital gains tax?

That’s a scary thought as most of us would only think investment properties were subject to capital gains tax.

The Australia Taxation Office general rule is your dwelling is no longer your principal place of residence once you stop living there. However, you can choose to treat your principal place of residence as your main residence for the purposes of capital gains tax even though you no longer live there.

Generally, you can treat your property as your principal place of residence for up to six years if you use it to produce rental income, or indefinitely if you don’t produce income.

If you purchase a new home before you sell your existing property both properties can be treated as your principal of residence for a period up to six months, on the following strict basis:

  • You lived in your old property and it was your principal place of residence for a continuous period of at least 3 months in the 12 months before you sold it.
  • You didn’t use it to produce rent in any part of that 12 months when it wasn’t your principal place of residence.
  • Your new property becomes your principal place of residence.

Calculating capitals gains tax is complicated and you need to ensure you clearly understand the Australia Taxation Office rules when it comes to this tax.

We strongly recommend you seek the expertise of a professional accountant who deals with lodging returns for capital gains tax. That will be the sure fire way to ensure the correct capital gains tax is calculated based on your circumstance and investment portfolio.

Professional accountants will give you the correct advice on knowing if your principal place of residence may be affected by capitals gains tax if you start producing income from it.

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The content published in this Blog is in the form of academic papers and the opinions expressed herein are generalised. The information provided is for educational purposes, not specific legal advice.

The application of any principles referred to can alter from case to case and accordingly you should seek independent legal advice in respect of your individual circumstances.


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