Capital Gains Tax (CGT) on Property

For assets acquired after 19 September 1985 (where the asset has been held for at least 12 months) and disposed of after 21 September 1999, individuals have the option to elect the:
• Frozen indexation method (from the date of acquisition up to 30 September 1999, being the date of the last index number) or;
• Discount method, where you elect to pay tax on 50% of the capital gain.

The method that gives the smaller capital gain should be chosen.

Where you have a capital loss, the loss can only be offset against a capital gain. However capital losses can be carried forward to future years (indefinitely).

If you are electing the discount method, you should offset a capital loss to a capital gain prior to applying the 50% discount.

Capital Gains Tax - Main Residence

A main residence is exempt from capital gains tax. In addition the land around the home is exempt if it is used mainly for private and domestic purposes and does not exceed two hectares.

To qualify for the full exemption the home must have been the sole and main residence for the total period of ownership and must not have been used for income producing purposes. There are some exceptions from this rule, for instance electing to continue with the main residence status which is described below.

 

Electing to continue main residence status

A person does not have to live in their home for the whole period they own it to maintain the right to treat it as the main residence. In some cases, they can elect that a particular home continue to be treated as the main residence even though they have ceased to use it as such.

For the exemption to apply, an election must be made by the tax return lodgement date for the income year in which disposal of the home is made. The election should be kept with the tax records.

If it is not put to any income-producing use, the home can be regarded as the main residence for an unlimited period after moving out of it. If it is put to an income-producing use after moving out, then, for any period of absence, the total period of income-producing use cannot be more than six years.

If a person is absent more than once during the period of ownership, the six-year period of income-producing use will apply separately to each period of absence. However, the home must again become the main residence after each period of absence.

The continuing main residence status lasts only until a person moves back in or the home is disposed of or until the end of the six years of income-producing use, whichever occurs first. During this time the effect of the election is that no other home - even if actually lived in - is regarded as the main residence. The exemption is only for the home for which the election is made.

Please note that the above details are for information purposes. We recommend you speak with your accountant for further information.

For more information about Capital Gains Tax (CGT) on property, why not arrange your complimentary first meeting with a Financial Spectrum financial adviser

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of Australia (FPA)