If you use your former home to produce income (for example, you rent it out or make it available for rent), you can choose to treat it as your main residence for up to 6 years after you stop living in it. This is sometimes called the '6-year rule'. You can choose when to stop the period covered by your choice.
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.
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.
This means that you would be able to sell the property within the six-year period and be exempt from paying capital gains tax just as you would if you sold the house considered your main residence. The six-year absence rule exists because there are many reasons why you may not be living in your property for some time.
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.
If you use your former home to produce income (for example, you rent it out or make it available for rent), you can choose to treat it as your main residence for up to 6 years after you stop living in it. This is sometimes called the '6-year rule'. You can choose when to stop the period covered by your choice.
Another way to avoid or reduce CGT is by increasing your property's cost base. This is the cost of acquiring, holding, and disposing of a property, and is subtracted from the selling price to give you your capital gain. According to the ATO, the cost base of a CGT asset is made up of: The money you paid for the asset.
A gain on an asset that is transferred between spouses or civil partners is usually exempt from CGT. This exemption includes divorced spouses, and separated or former civil partners. The exemption does not apply where you transfer: trading stock of a business carried on by you, to your spouse or civil partner.
Amount of the Lifetime Capital Gains Exemption
For the 2022 tax year, the lifetime capital gains exemption is $913,630. However, since the government only counts 50% of this money as taxable capital gains, in practice, the amount of the deduction is $456,815.
Assets acquired before 20 September 1985
Assets you acquired before 20 September 1985 are exempt from CGT.
Increase your cost base
One way to reduce the amount of capital gains tax you pay is to increase your property's cost base. The cost base is the money required to acquire, hold, and dispose of a property. The cost base is subtracted from the selling price to give you your capital gain.
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.
For example, if you rented it out for 5 years, you can choose to treat the property as your main residence for 3 years. If you're absent more than once when owning the property, the 6-year period applies to each period of absence. A period of absence stops when you either stop renting your home and: move back in.
Simply put, yes, retirees pay capital gains tax in Australia. However, being a retiree does make one eligible for certain exemptions and concessions, particularly in regards to the sale of property or a business.
“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.
You won't have an assessable capital gain when you sell a business asset if: your business has owned the asset for at least 15 continuous years. you're aged 55 years or over. you're retiring or permanently incapacitated.
You don't incur LTCG tax on capital gains from ELSS up to Rs 1 lakh. However, you have to pay long-term capital gains tax on (Rs 1,50,000 – Rs 1,00,000) Rs 50,000 at 10%. You will incur an LTCG tax of Rs 5,000 (10% of Rs 50,000) on your capital gains from ELSS.
If your ordinary tax rate is lower than 28%, then that rate will apply. But if you're in a higher tax bracket (i.e., 32%, 35% or 37%), then the capital gains tax on your collectible gains is capped at 28%. The 28% limit doesn't apply to short-term capital gains.
Need to know: The super CGT cap
The super capital gains tax cap is a lifetime limit. This includes the small business retirement exemption and the 15-year CGT exemption. This cap is indexed annually and is $1,650,000 for 2022–23.
According to the ATO, 'in general, your main residence (your home) is exempt from capital gains tax (CGT)'. You do need to meet certain criteria for a dwelling/property to be classed as your main residence or home. These include: Living there (the longer you live there the better)
You are exempt from paying CGT on your home. Investors pay CGT when selling an investment property, but there's a 50% discount if you've owned the property for 12 months. Use a CGT calculator to estimate your capital gains tax when selling a property.
There is a capital gains tax (CGT) discount of 50% for Australian individuals who own an asset for 12 months or more. This means you pay tax on only half the net capital gain on that asset. Some assets are exempt from CGT, such as your home.
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.
Your main residence (your home) is exempt from CGT if you are an Australian resident and the dwelling: has been the home of you, your partner and other dependants for the whole period you have owned it.
50 per cent rule: As previously mentioned, property investor who have owned an investment property for more than 12 months are entitled to a 50 per cent discount on CGT. Primary place of residence: This refers to when a person resides, occupies and lives in a property as their home.