With the rising house prices in Australia, many homeowners are tempted to cash in on their properties. However, it is essential to consider the potential partial capital gains tax (CGT) liability that may arise from the use of your home. While the Australian Taxation Office (ATO) may not actively pursue homeowners for overlooked partial CGT exemptions, it is crucial to be aware of this issue. This article explores some common scenarios where a partial CGT liability may arise and emphasises the importance of seeking professional advice.

 

Delayed occupancy

If you were unable to move into your newly purchased home “as soon as practicable” as required by the CGT main residence rules, you may face a partial exemption. Exceptions, such as serious illness, may be considered, but if your home was subject to an existing lease or if you had commitments like an interstate job, a pro-rata partial exemption may apply.

 

Absence from home and rental

Renting out your home while living or working overseas or interstate can lead to a loss of full CGT exemption. If you rent your home for an extended period or claim the main residence exemption for another property during your absence, a pro-rata calculation based on your home’s market value at the time of renting will determine the partial CGT liability. The interaction between the absence concession rules and rental use can be complex, necessitating professional advice tailored to your circumstances.

 

Business use of home

Using a portion of your home for business purposes, such as consulting rooms or repair and maintenance workspaces, can result in a partial CGT exemption. The specific rules and calculations depend on the extent of business use and require professional advice to ensure maximum benefit.

 

Two homes of spouses at the same time

Spouses, including de facto and same-sex partners, cannot claim separate main residence exemptions on different properties simultaneously. They must either nominate one home as their CGT-free main residence for that period or claim a half exemption on each property. This rule applies when couples live together while retaining individual homes or when they become de facto partners while maintaining separate residences. The complexity of CGT rules in these situations emphasises the need for professional guidance.

 

Conclusion

Before selling your home to take advantage of soaring house prices, it is crucial to consider the potential for a partial CGT exemption. Seek advice from professionals who can assess your specific circumstances and provide guidance on maximising exemptions. While the ATO may not currently scrutinise these issues closely, it is essential to stay informed and proactive to avoid potential future tax liabilities.

So, if you’re considering selling your home and want to ensure you navigate the complexities of partial capital gains tax (CGT) liability successfully, don’t hesitate to reach out to Regency Partners for expert guidance tailored to your specific situation. Our team of professionals is here to provide you with the information and support you need.