Q & A – Main residence CGT exemption

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

Stuart Sheary, Senior Technical Services Manager

Q: My client purchased a large property (5.5 hectares) 6 years ago for $800,000. None of the property is being used to produce income. If were sold today for $2,500,000 would my client be liable for capital gains tax?

A: When the home is sold your client can have the home and up to 2 hectares of land under the home and adjacent to the home exempt under the main residence CGT exemption. If we assume that the valuation suggests that the home an all the land is of equal value, then 2 / 5.5 (approximately 36%) of the gain on the land can be exempt under the main residence CGT exemption.  

The ATO provide a similar example which may also assist which can be found here.
 

 

Q: My client purchased a new home and immediately moved in. They retained their old home until they got the price they wanted which was 9 months after acquiring the new home. Can my client treat both properties as their main residence simultaneously?

A: Your client can treat their new home as their main residence from the time they acquire it if they move in as soon as practicable. If they have not sold their former home, they can generally treat both as their main residence for up to 6 months. Note it is necessary for the old home to have been lived in as your client’s main residence for a continuous period of at least 3 months in the 12 months prior to disposal. It is also a requirement that it was not used to produce income in any part of that 12 months when it was not your client’s main residence.

For more information please see the ATO’s Moving to a main residence page which can be found here.
 

 

Q: If a client were to buy a house that needed substantial renovations before moving in, how long is "as soon as practicable"?

A: Under section 118-150 your client will generally have up to 4 years to build or renovate their home on land they own and still treat the land as their main residence.

See also the ATO’s Building or renovating your home for more information which can be found here.
 

 

Q: If someone works form home due to say COVID will the home only receive a partial main residence CGT exemption?

A: A client’s main residence exemption may be impacted if the home is held to be income producing. Tax ruling 93/30 notes that for a dwelling (or part of it) to be regarded as being 'held or used for the purpose of gaining or producing income' it must constitute a place of business. For more information on what constitutes a place of business please see paragraphs 11 to 13 of the ruling.
 
If an employee is working from home, occupancy expenses are not usually deductible. Alternatively, where someone is running a business occupancy expenses that may be deductible might include rent, mortgage interest, property insurance and land taxes.

An employee may be eligible to claim a deduction for any additional running expenses such as phone and internet expenses, home office equipment etc.
 

 

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.