Q. I have owned my home for 10 years and I worked overseas and rented it out for 3 of those years. I have been told I may have to pay Capital Gains Tax (CGT) on a portion of the gain. Is this the case?
A. Your home is exempt from CGT provided it is your main residence. There are various scenarios that you need to be mindful of that may affect this exemption.
If you live in a property as your main residence and then rent out the property, you are allowed to rent the property out for up to 6 years without the property being assessed for CGT. The exemption would remain indefinite if the property does not produce income and you do not have another main residence. So in your case you are well within the 6 year exemption window.
If you are absent for greater than 6 years, you are still entitled to the 6 year exemption and will only have the period beyond the exemption counted for CGT purposes if you have another main residence or derive rent income from the property in question.
The exemption for a main residence can only apply to one residence. However you are eligible for a 6 month exemption to this rule provided you lived in your old home for at least 3 months in the year prior to disposing of the property, you didn’t rent either property out and the new property becomes you main residence.
There are no prescribed periods for how long a property must be your main residence but you need to be able to justify why you moved out to ensure you are not caught under tax anti-avoidance. In your case work redeployment overseas is a justifiable example.
If you purchase a home but rent the home out first and then move into it, the period of time that you rent the property out is treated as being assessable for CGT. For example if you owned a property for 10 years, rented it out for the first 3 years and then lived in it as your main residence for 7 years, you would be liable for CGT on 3/10ths of the period and pay 3/10th of the CGT liability over the 10 year period.
Obviously any rent you receive whilst renting out your property is taxable income and likewise any expenses such as interest payments, agents fees and maintenance on the property are claimable expenses.
You may be liable for CGT if you derived income from the property or claimed expenses on the property whilst it was your main residence. For example claiming rent expenses on a room or claiming a portion of the mortgage costs if you are self employed.
Please note these rules and exemptions only apply for Capital Gains Tax, please check with your Sate Government Authority in relation to the rules applicable to Land Tax in your State.
For further information, contact your accountant or visit www.ato.gov.au and search “Main residence exemption”