Taxing the Australian Dream!
Owning your own home has always been everyone’s Australian Dream. It meant that you would be set up for life and selling your home was tax free. This tax free dream is no longer as simple to achieve as the nature of the property market has largely changed. More people are running businesses from home, renovating and selling, or renting out their properties casually on Airbnb, all of which exposes the humble home to the implications of capital gains tax.
Here is a list of things you need to know before selling your property:
Sale of home is tax free
Provided that it is your main residence and you have not used it for any other purpose than for you and your family to live in for the entire length you have owned it. If you move away from your home and do not elect another dwelling as your main residence, you may be eligible for main residence exemption for up to six years if it is used to produce income, or indefinitely if not used to produce income.
If you have used the property to run a home business, or leased out casually, for example on Airbnb, you may be taxed proportionately on gains made on selling the property based on floor space used for the business and/or period for which the house was used to produce income.
It has become a recent trend for people to purchase property with the intention to renovate and sell at a profit. This is known as property flipping. If you property flip, the ATO considers you as being in business and therefore the houses sold would be considered as trading stock. Assets held as trading stock would not be eligible for capital gains tax discount, small business concessions or main residence exemptions. Once-off property flippers should also be weary that simply moving into your property whilst undertaking renovations does not automatically mean that the main residence exemption will apply.
Selling your home whilst living overseas
If you leave Australia, become a non-resident for Australian tax purposes and sell your home whilst overseas, you will not be eligible for the main residence exemption for the sale of properties after 9th May 2017. For properties held prior to this date, transitional provisions will allow foreign residents to access the main residence exemption up to 30 June 2019.