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Capital Gains Tax (CGT) Renting Principal Home ?

by | Dec 16, 2014 | Capital Gains, Insights, Property Taxation

Umbrella Accountants – Property Accountants Brisbane

If you rent out your principal place of residence that was acquired after the 20th September 1985, there may be a CGT issue to consider!

Properties purchased before 20th September 1985 will not be subject to CGT regardless if rented out.

If your principal home is rented for the first time before 7.30pm on 20 August 1996, and purchased after 20th September 1985, the CGT will be calculated on a pro-rata basis (ie) if owned for 30 years, and rented for 10 years, 1/3 of the overall gain will be subject to CGT

If however your principal home is rented for the first time after 7.30pm on 20 August 1996 and purchase after 20th September 1985, the Market Value Substitution Rule will apply S.118-192 of the ITAA 1997, (ie) the property is valued for CGT purposes as its Fair Market Value on the day it was first rented ( you will need a valuation). The CGT is calculated on any increase in value from this point. A further point to note, the 50% CGT discount only applies after 1 year and 1 day after the date of contract.

In addition there is the 6 year rule, if you move back into your principal home before 6 years of renting it out, then CGT may be ignored provided you have not elected any other home as your principal place of residence. The ATO only allows one property to be your principal home at a time, the election is indicated by how you lodge your tax return.

Another common mistake is that CGT is calculated from the date of contract not the date of settlement, some people assume that a sale before the 30th June that settles after the 30th June, pushes the CGT into the following year, unfortunately incorrect.

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