Could you incur Capital Gains Tax when selling your home?

Selling your family home is a big decision, and it's natural to have questions about the potential tax implications.

Homeowners in Australia enjoy what is called “main residence exemption”, which shields your home from capital gains tax (CGT) when you sell. However, the rules can be a bit tricky.

Think of the main residence exemption as a way for the Australian Taxation Office (ATO) to recognise your home is more than an investment – it's where you and your family live, keep your belongings, receive mail, and have essential services connected.

As an Australian resident for tax purposes, you can typically access the full exemption when you sell your home if it meets the following conditions:

• It was your main residence for the entire period you owned it.
• You didn't use it to produce income (e.g., rent it out).
• The land is 2 hectares or less (or up to 2 hectares of adjacent land for larger properties).

There are partial exemptions. For example, you might still be eligible for a partial exemption if you've used your home to generate income, such as running a business or renting it out (including through platforms like Airbnb).

Keep in mind that as of July 1, 2023, platforms like Airbnb must report transactions to the ATO, so it's important to accurately declare any income earned.

Foreign residents cannot claim the main residence exemption, even if they were residents for part of the time they owned the property. If you were a non-resident for some of the ownership period but are a resident at the time of sale, you might still be eligible for the exemption if you meet the other criteria.

It's important to note that tax residency is different from visa status, so seek professional advice if you're unsure about your eligibility.

There's also something called the “Absence Rule”. If you move out of your main residence but don't sell it, you can still treat it as your main residence for tax purposes for up to six years if you earn no income from it.

Your main residence typically qualifies from the time you move in and start living there. If you're buying a new home but haven't sold your old one yet, you might be able to treat both properties as your main residence for up to six months under certain conditions.

Couples can have separate main residences, but there are rules around how the exemption is applied. If you're going through a divorce, it's important to understand how the main residence exemption will be affected by the property settlement.

While the main residence exemption may seem straightforward, the specifics can be complex.  It's always a good idea to consult with a tax professional or financial advisor to ensure you understand the rules and how they apply to your situation.

NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.

Paulette Contessi

Director / Licensee

CONTESSI PROPERTIES