As this is a complex topic, it may not meet your individual circumstances. If you're uncertain, get professional advice relevant to your circumstances. You're exempt from capital gains tax (CGT) if you bought property before 20 September 1985.
It is important because: CGT does not apply if you owned the asset before CGT started on 20 September 1985 (but major improvements to a property since 20 September 1985 may be subject to CGT)
A capital gains tax (CGT) was introduced in Australia on 20 September 1985, one of a number of tax reforms by the Hawke/Keating government. The CGT applied only to assets acquired on or after that date, with gains (or losses) on assets owned on that date, called pre-CGT assets, not being subject to the CGT.
Usually, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence: for up to 6 years if you used it to produce income, such as rent (sometimes called the '6-year rule')
It's worth noting, some assets and events are exempt from capital gains tax. These include selling your principal home or personal car, or selling an asset acquired before capital gains tax was introduced on 20 September 1985.
How long do you have to live in a house to avoid capital gains tax in Australia? To avoid CGT, you'll need to live in a property for twelve months for it to be counted as your main residence before you can move out and use it as an investment property.
Capital Gains Tax Exemptions or Discounts
The first one is the main residence exemption. Main residence exemption allows homeowners to avoid paying capital gains tax if their property is their principal place of residence (PPOR). Other exemptions include: The capital gains tax property six-year rule – see below.
The major draw is what experts have labelled the “six-year rule”, which means if someone buys a property, lives in it for six to 12 months, and then rents it out, they don't pay any capital gains tax on the growth in its value for six years.
If the property meets the main residence exemption and is sold within two years of the deceased's death, even if the property earned income in the meantime, the property will be exempt from CGT.
It is also possible for a retiree to not pay any capital gains tax when selling an investment property through deductible super contributions and the general 50% CGT discount, or if the investment property is owned within a SMSF that is in pension phase.
Capital gains tax (CGT) in Australia is a tax on the capital gain made on the disposal of an asset, such as a property or shares, which was acquired on or after September 20, 1985. The capital gain or loss is calculated as the difference between the cost of the asset and the disposal proceeds.
Any assets acquired before 20 September 1985 will generally be treated as pre- Capital Gains Tax (CGT) assets. This means any capital gain or loss arising will be disregarded and no gains or losses will be reported in respect of these assets on the Tax Reports.
New South Wales was the first colony to introduce stamp duty taxes in 1865.
There are no inheritance or estate taxes in Australia. However, you may have tax obligations for the assets you inherit: capital gains tax may apply if you dispose of an asset inherited from a deceased estate. income tax applies as usual to any dividends or rental income from shares or property you inherited.
Offset any losses against your gains
You can reduce your CGT liability by offsetting losses against gains in the same tax year. If your losses exceed your gains, you can carry these losses forward indefinitely to offset them against future gains, provided you have registered them with HMRC.
Your main residence (your home) is generally exempt from capital gains tax (CGT) if you meet the following conditions. hasn't been used in a profit-making activity – 'property flipping' (where the property was bought to renovate and sell at a profit).
Six month rule
The old property was the owner's primary place of residence for a continuous period of at least three months in the twelve months before it is sold. The owner did not use the old property to provide an assessable income in any part of the twelve months when it was not the primary place of residence.
Offsetting Capital Gains with Losses from Prior Years. Up to $3,000 in carryover losses can be applied to yearly income. From the above examples, $3,000 of the $7,000 capital loss can be applied to the next year, leaving a $4,000 loss to be applied in future years.
A person can only have one principal place of residence. If you own multiple properties and live in more than one of them, you are generally only eligible for one exemption on the property deemed to be your principal place of residence.
12-month ownership requirement
The CGT event is the point at which you make a capital gain or loss. You exclude the day of acquisition and the day of the CGT event when working out if you owned the CGT asset for at least 12 months before the 'CGT event' happens.
This is where the six-year CGT exemption rule comes into play. Once your property no longer meets the ATO's main residence criteria, you can still claim it as your principal place of residence for up to six years. This is known as the six-year absence rule or six-year exemption.
“If you rent the property out for, say, five years, then move back in for six months, then rent out the property again for another five years, your entire capital gain will be tax-free,” he said. “The 'six-year rule' resets each time you move back into the property and live in it as your main residence.