Author: RKD(Initiate)Initiate 17 July 2021
Hi team
I have a query regardig Calculation of Capital gain on Investment property used previously as principal place of residence.
We have recently sold residential property say for $680,000.
The property was purchsed in 2011 for $500,000 and stamp duty and other expenses wer $10,000. We made renovations in 2013 for $10000, while it was used as principal place of residence
the property was used as Principal place of residence till Sep 2019 and then converted into investment property from Sep 19. On that date the estimated market value of the property was $650,000.
It was sold in Sep 2020 for $680,000 and selling expenses are say 15,000.
So teh profit out of sale is $145,000 ($[TFN removed by moderator],000-10,000-10,000-15,000).
My query Is there any Capital Gain arsing out of this transaction or whole of profit is exempt from tax. If, taxable, how much of this is taxable and how is that calculated.
Whether 50% discounting provision is applicable as the property was held as for more than 12 month though it was used for investment for 11 months?
thanks
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3 replies
Hi there,
Generally speaking, your property may be liable for capital gains tax (CGT) as you have used to it produce income. If you start using your main residence to produce income, the cost base of your property is the market value of the property when you first used it to produce income. You don't have a choice. This is called the 'home first used to produce income rule'.
Your capital gain is the difference between your capital proceeds (amount received for the property) and the cost base (market of your property when you first used it to produce income.)
If the 'home first used to produce income' rule applies and the period between when you first use the dwelling to produce income and the CGT event happening is less than 12 months, you can't use the CGT discount method.
Treating your dwelling as a main residence after you move out
However, If you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you stop living in it as long as you don't treat any other dwelling as your main residence for that period. If, as a result of you making this choice, the dwelling is fully exempt from CGT, the 'home first used to produce income rule does not apply. For more information, refer to treating a dwelling as your main residence after you move out.
Hope this helps
Wufflepuffle
Author: RKD(Initiate)Initiate 18 July 2021
Thanks a lot Wafflepaffle. It is really helpful.
To determine the Market Value of the property - whether they need to get the proper Valuation report from registered Valuer or they can get a letter / certificate from the Real Estate Agent.
If they want to use that as main residence and claim exemption, what would be the staus on the property they are currently living.
They purchased and moved into new property. If they sell that property after a year whether they can claim exemption for that property as they lived in that property.
Will the treatment be different if they lived for 1 year since the sale of first property, I am assuming they should be able to claim the new house as main residence after the sale of old property.
Do they need to have a certificate / declaration for choice of method?
