11 Strategies To Minimise Your Capital Gains Tax

11 Strategies To Minimise Your Capital Gains Tax

Feel free to use this image just link to www.rentvine.comCapital gains tax (CGT) is the tax charged on the gain you make from selling an asset e.g. real estate, which you acquired after 20 September 1985.

For those in the highest tax bracket, you could be taxed up to 45% on your property’s capital gain when you sell.

The good news is that with a bit of knowledge and forward planning you can substantially minimise your capital gains tax, or even avoid it altogether.

Here’s how.

1.      Hold for 12 months

Once you’ve owned a property for 12 months you’re automatically entitled to a 50% tax discount on any capital gain you make when selling the property.

As an example, say you bought an investment property a few years back and then recently sold it, making a capital gain of $100,000.

Straight away you can reduce your taxable amount by 50%, so $50,000.

If your salary was $90,000, then your taxable income becomes $90,000 + $50,000 = $140,000.

The next step is to work out which tax bracket you are in by consulting this table on the ATO website.

Your total income of $140,000 puts you in the fourth row, and you can then work out the total CGT you will pay as $50,000 (capital gain) x 37% (tax rate) = $18,500.

2.      Move in right away

By moving in straight away, you help qualify the property as your Primary Place Of Residence (PPOR).

Your main residence is exempt from CGT, so when you sell the profit is all yours.

As an added bonus, you also satisfy the requirements for receiving the first home owners grant (but only if it’s a new home, or if you’re in WA for a short time longer).

If however you originally rented the property out, and then moved in at a later date, you are still entitled to a partial exemption.

The partial exemption is calculated as a proportion of the ‘years lived in’ to ‘years rented’.

Example

Brad buys a property and rents it out right away.

 

2 years later he decides he wants to move in, and lives there for 6 years before selling it, making a capital gain of $200,000.

 

He only has to pay CGT on one quarter of that amount, which is the 2 years the property was rented, out of the total 8 years he held the property for.

 

Brad’s taxable amount is therefor only $50,000. Even better, because he’s held the property for more than 12 months he can further reduce this by 50%, leaving him with a total increase to taxable income of just $25,000.

3.      Revalue before you rent it out

If you rent your property, the capital gain is calculated by the difference between the final sale price and the property value at the time it was rented.

However, if you didn’t get the property revalued at this time then the value will be taken from the original purchase price.

To avoid paying more tax than necessary, make sure you always get the property revalued by a licensed valuer before renting it out. You then have a new cost base from which to calculate any future capital gains.

Example

  • Gary buys a house in 1998 on the Central Coast for $200,000 and moves in
  • In 2008 just before renting the property out, he has the property revalued at $500,000.
  • In 2010 Gary sells the house for $480,000.

 

His capital gain is calculated by $480,000 (sale price) – $500,000 (value prior to renting).

 

For tax purposes Gary has actually made a capital loss of $20,000 and can offset this amount from a current or future capital gain.

 

If Gary was in the third tax bracket this would be a saving of $20,000 x 32.5% = $6,500, plus the overall capital gain of $280,000.

4.      Monitor your rental periods

rental periodYou are allowed to rent out your property for up to 6 years and still be entitled to a full CGT exemption, provided you are not using another property as your main residence. This is commonly known as the ‘6 year rule’.

The 6 years doesn’t have to be continuous either; if the property goes vacant for a time then this period is not added to the 6 years.

This means that after renting your property out for say 3 years, if you were unable to find tenants for a few months or if you undertook some renovations, the counter stops. You can then rent out the property again for a further 3 years and still sell the property without having to pay tax on any capital gains.

If you do exceed the 6 years, then you need only pay tax on the proportion of time that the property was rented for longer than 6 years.

Example

  • Sarah buys an apartment in Melbourne for $400,000 and moves in right away to qualify the apartment as her PPOR.
  • After 2 years she moves overseas and rents out her apartment. At the time she has her apartment revalued at $500,000.
  • Sarah returns from overseas after 7 years and sells her property for $700,000.

 

Her capital gain is taken from the revalue prior to renting, so her gain is assessed as $200,000.

 

Sarah’s taxable gain is then $200,000 x 1/7 (she’s only liable for 1 year out of the 7 it was rented)
= $28,572.

 

But, she’s also entitled to the 50% discount, so this amount further reduces to $14,286. Assuming a tax rate of 37% her total CGT is then $5,286.

 

Ultimately she’s made a capital gain of $300,000 but has only had to pay $5,286 in tax, or 1.76%.

Like some more examples? Here’s a recent video from the ATO (June 2014) which runs through a couple of likely scenarios when selling a rental property that was also your home.

An additional note for those with multiple properties; the 6 year rental period is cumulative between properties. That is, if you own 2 properties with one as your PPOR and then rent both out, after just 3 years CGT will come into effect on your main residence because the cumulative rental period is 6 years.

5.      Choose your main residence wisely

If you own more than one property then the ATO gives you the power to choose which property you wish to treat as your main residence, assuming both are eligible.

If you decide to sell, you can save a lot of money by choosing the property with the higher capital gain as your PPOR.

Example

Ryan buys a property in Sydney and moves in right away.

 

2 years later he is relocated to Brisbane and rents out his Sydney property. After 2 years renting in Brisbane Ryan finds a property to buy and moves in.

 

Another 2 years later Ryan decides he wants to sell his Sydney property. Since it has only been rented for 4 years it is still eligible as his main residence.

 

Ryan gets a free valuation from local real estate agents for both his properties, and finds that his Brisbane property has gone up $20,000. His Sydney property is now worth an estimated $80,000 more.

 

After completing the sale, Ryan nominates his Sydney property as his main dwelling in his tax return, and enjoys a tax free capital gain of $80,000.

For those that are switching to a new property, there is a three month window between buying a new house and selling your old one before CGT applies.

For further information and more examples on choosing your main residence check out the ATO’s guide to treating a dwelling as your main residence after you move out.

6.      Consider moving in again

moving houseIt was mentioned earlier that you can rent out your property for up to 6 years and still enjoy full exemption from CGT.

But did you know what you can earn another 6 years exempt period by living in your residence again?

To qualify for another 6 years you just need to treat it as your main residence again (Source and example).

What does this involve? The ATO has put together a general list, which includes:

  • Moving yourself and your belongings in
  • Making it your address for the electoral roll, bills, bank statements etc.
  • Connecting utilities in your name (and actually using them)

The downside is that you must kick out any existing tenants, miss out on rental income which is helping to pay off your mortgage, and then find new tenants again. But, if you decide to eventually sell, then the tax savings are potentially huge.

Also, don’t forget that you can’t treat a second property as your main residence in this time. You can’t move back and forth between multiple properties to avoid paying tax on all of them.

7.      Renovations, repairs and depreciation

Renovating is not only a great way to manufacture capital growth by adding value to your property, but you can also use the costs to reduce your capital gain.

When you use the ATO’s capital gain or capital loss worksheet there are three main categories which can be added to the cost base of your property:

  • Incidental costs such as stamp duty and legal fees.
  • Ownership costs such as council rates, land tax, strata fees and interest. If you rent your property out and claim these as deductions then they may no longer be added.
  • Capital expenditure e.g. renovations

Capital gain / loss = Sale price – Cost base (purchase price plus the above 3 items)

It’s important to differentiate between renovations and repairs though, because if you’re renting out your property then repairs are typically claimed as deductions, and deductions actually reduce your cost base i.e. they increase your capital gain.

The exception is initial repairs when you buy the property, which are not allowed to be claimed as deductions, and so can be added to the properties cost base similar to renovations.

So while renovation costs add to your cost base and reduce your capital gain, if you were to claim depreciation for your upgrades then although you would receive tax benefits each year (2.5% over 40 years), you would end up paying this back through capital gains tax if you eventually sold.

Bit confusing? This video from the ATO runs through a good example of everything just mentioned, and also shows how CGT is broken up if you bought with a partner.

Depreciation is a complex topic which you can learn more about here. For even further reading you might find these resources from the ATO useful:

8.      Self-Managed Super Fund’s

super taxA Self-Managed Superannuation Fund (SMSF) or “do it yourself super”, is a form of superannuation fund where you as a trustee and member have responsibility over the management, investment and administration of the fund.

The general idea then is that you use your super fund to purchase the property along with a SMSF property home loan, which is then paid off with your super contributions.

There are however some rules:

  • The property cannot be lived in by you, or anyone else in your fund, or anyone related to you or anyone in the fund
  • Funds can only be used to maintain a property, not improve it i.e. don’t buy a place that needs renovating

SMSF’s typically enjoy much more relaxed capital gains tax rates, and in some situations are even completely exempt.

Be aware that setting up a SMSF is not a simple task, and you should never attempt to do so without first seeking professional advice.

I’m also definitely not advocating using your SMSF as a means of tax evasion. The ATO have announced that they are commencing a large scale crackdown on those abusing the system, so be careful.

For some though it is a viable option, and one that many Australian’s use successfully.

SMSF’s are strictly regulated by the ATO, who have a large library of information on the topic which you can find here, as well as some videos on their YouTube channel.

9.      Offset your gain

If you’re still expecting to have to declare a significant capital gain, then you should try to offset your gain by reducing your taxable income in other ways.

Here are some options:

  • Buy another property and prepay the interest for the first year (fixed rate loans only)
  • Prepay your life or income insurance for a year (actually prepay anything that’s tax deductible)
  • Take some unpaid leave from work
  • Make some super contributions. Concessional contributions are taxed at only 15%. Note that for 2015/2016 concessional contributions are capped at $30,000/$35,000 for those under 50/over 50. More info here.
  • Donate to charity
  • If your income varies from year to year, wait for a low income year and then sell

There’s plenty of other ways but that’s a good start and should get you thinking.

10. Don’t sell

home loan refinanceIt might sound silly, but it’s actually one of the most popular strategies with professional property investors.

What do they do then? It’s a method known as refinancing.

First of all, you need to get your home revalued to work out how much theoretical capital gain you’ve made.

You can then approach your lender and refinance your loan based off the new property value, i.e. you can borrow additional money because your LVR is now much lower so you have the option to borrow more.

(Not sure what LVR is? Check out the free property beginners guide to learn more)

In this way you are able to access the equity you have in your property and then use that money for a new investment e.g. buying a second property. And of course, you’ve avoided paying any CGT.

Example

  • Alex and Rachel buy an apartment for $500,000 with a loan of $400,000 (LVR = 80%)
  • After 5 years, they’ve paid off $50,000 in principal on their loan, and the apartment has been revalued at $650,000
  • They want a bigger home and need money for a deposit on a house. How much equity can they access?

 

Their current debt is $350,000 ($400,000 loan less $50,000 principal repaid).

 

Their equity = $650,000 (current property value) – $350,000 (current debt) = $300,000

 

For a good property in a good area, bank’s will usually grant as much as an 80% LVR loan on equity, so Alex and Rachel would be able to access up to:

 

$300,000 x 80% = $240,000

 

This money can be used as a deposit for a house, and they can rent out their current apartment to cover the repayments on their existing loan.

This is actually the beginnings of how real estate tycoons buy more and more properties and end up with seriously large property portfolios, but that’s a topic for another day.

11. Sell in July

With the financial year ending on 30 June, by selling in July you give yourself a full 12 months to implement one or more of the options above, such as reducing your taxable income.

At the very least, you keep the money for another year and at least gain some interest.

If you had a taxable gain of say $100,000 then by holding onto the money from July to October (16 months) and putting it in a 5% interest savings account you could potentially earn over $6,500 in compound interest, or reduce interest repayments on a home loan.

As a general rule, if you’re ever expecting to receive a tax refund then you should aim to file your tax return as early as possible.

If you’re expecting to owe money it doesn’t matter when you file; your payment is usually due 2-3 weeks after close of lodgement period i.e. mid November.

Final word

Some strategies are pretty simple, while others are a bit more creative and require some work and careful planning. Your personal situation will determine which combination of strategies is best for you.

There is one more strategy however which I have saved until last, and it’s the most important of all. If you do not implement this one correctly then all other strategies above are likely to fail.

receiptsRecord keeping.

By law you need to keep records of everything that affects your capital gains and losses for up to 5 years after the CGT event (after you sell the property).

Here are the main ones:

  • Purchase contract
  • Stamp duty
  • Legal fees and any other fees arising from purchasing the property
  • Property valuations
  • Renovation costs
  • Ownership costs: interest, strata fees, land tax, council rates, water charges, insurance, repairs
  • Past tax returns indicating which items have and have not been claimed as a deduction
  • Proving rental/non-rental periods: lease agreements, mail, electoral roll details, gas/electricity/phone bills
  • Sales contract
  • Selling fees e.g. agent’s commission

For further reading on capital gains tax the ATO has an excellent library of information which you can find here, as well as their Guide to capital gains tax 2017.

One last thing – if you’ve found this information helpful could you please do me a HUGE favour and share it around because the more people who are aware of this stuff the better. Cheers!

images by Dave Dugdale, Dan Moyle, Joseph Bergen

180 thoughts on “11 Strategies To Minimise Your Capital Gains Tax

  1. Jackie

    Hi Adam,

    Great article. I had a question that I don’t believe had been answered yet. We bought a house in 2008, moved in and then rented it out until 2013. We moved back in for 5 months in 2013 and then moved back out and have rented it since . we just sold the property this week. I know I can claim up to 6 years PPOR during the time it was rented out. (between 2008-2017 – but only 6 years.) But for the CGT calculations it would be very advantageous if I could use a valuation of the property in 2013 – is this possible since we lived in it again in 2013 and then moved out again?
    thanks.

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  3. Jen

    How long do you have to live it in to be classified as your PPOR ? I built a new home, will have lived in it for 12 months prior to renting it out, and will move into my new home then making that my PPOR for 12 months. Does this work in terms of qualifying ? Can I change my PPOR only after 12 months to reduce CGT?

  4. Priya Reghunath

    Hi Adam,

    Your site is very informative, thank you very much.

    We bought our first property in Jan 2004 priced 298000/-(We believe it is currently worth 700000/-). We lived there as PPOR till Jan 2009. We rented it out since then & in between for about a year we did not have tenants as we did some renovations etc. In Jan 2009, we bought another property & that has been our PPOR since then.

    We did not formally valuate investment property in 2009, but we believe it was about 450000/-. We will be CGT exempt for 6 years from Jan 2009 as it was our PPOR. Of the 8 years that we used it as investment property, one year we did not have tenants, so the number of years used as investment was only 7 years. If we sell for 700000/- now, the gain is 250000/- since 2009. 1/7 of that will be 35000/-. Since it is in both mine & my husband’s name we will have to pay 17500/- each as CGT. This is the scenario if we sell now. Am I correct?

    To get CGT exemption, we are planning to sell our current PPOR, move into our investment property, live in it for 12 months & then sell it. Does that mean we don’t have to pay CGT at all or still pay 17500/- each, and CGT exemption will get reset for another 6 years?

    Kind regards,

    Priya

  5. Natasha

    Hi, I hope you can give me an advice. I purchased a rental property (as an investment) in Brisbane in April 2014, for $330,000. I paid Investment Property stamp duty at the time. The house has been tenanted straight away, for 3 years in total. I moved in the house as a place of principal residence in June 2017. I plan to renovate the property and sell it next year, living in it for 1 year. The current market indicates that house will sell in 2018 for around $530,000. The estimated profit will be $200,000. My average annual income is $18,000. How much CGT will I have to pay?
    Thank you, Natasha

  6. shella hall

    Hi,
    Thanks so much for all the useful info, however I do have a question regarding my situation that I can’t seem to find the answer to, so hopefully you can help me. I bought a house in Qld in July 2017 for $640,000. I am currently living in this house and have been for the past 6 weeks since I purchased it. It’s my only house. However my situation has changed dramatically and I’m now considering going overseas for about 2 years and therefore renting out my house during my absence. If I do this, will I have to pay CGT when I finally sell this house, which could be immediately after my return in 2 years, or I may move back into it for a while and then sell it. I know that it’s less than 6 years renting it out, but the part that is different to the examples given on your site is that I’ve owned it for less than 12 months. This is what I’m not sure about, whether the short ownership before renting it out affects anything?
    Many thanks for any help you could give me with this situation, much appreciated.
    Kind regards
    Shella

    1. Adam Sweeny Post author

      Hi Shella, great question. I’m guessing you’ve read this article already:
      https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence/

      I would recommend gathering as much evidence as possible (removalist receipt, electoral role registration, services bills etc). It would be worth approaching a tax accountant also and asking for their opinion, maybe they can even submit something more formal to the ATO? Not sure about that one.

      Good luck!
      Adam

  7. Shashi

    Hi Adam,

    The above queries and responses are a great help to novices like me. I have a question regarding my situation ie.

    I purchased a residential house in Melbourne and moved into it straight away in Sept 2004
    I was living in that property from 2004 to 2011
    I then moved to Brisbane in Jan 2011 for contract work with the intention of moving back to Melb in future
    Hence, I rented out my Melb place from March 2011 onwards.
    Work opportunity was better in Brisbane over the years so continued to work in Brisbane
    Subsequently I bought a house in Brisbane in Nov 2011 to avoid wasting money in rent but Melb was always deemed to be my Primary Place of Residence as intention was to move back.
    Intention was to sell Brisbane place when I would move back to Melb.
    In 2016, I finally decided to stay in Brisbane and sell my Melb place which got sold in Sept 2016. ie. Melb house was rented out from March 2011 till Sept 2016

    Do I qualify for CGT exemption under the 6 year ATO rule ?

    If not, can I approach my Bank or a valuer to obtain a backdated valuation if required to determine cost base as of March 2011 ?

    Thanks in advance for your help

    1. Adam Sweeny Post author

      Hi Shashi, yes you qualify. However, you have the choice to decide which property was your PPOR once you bought the brisbane one. It would be a good idea to check which property has gone up more since 2011. The one that went up more is the one you should claim as your main residence! (see strategy 5)

      Good luck,
      Adam

  8. Chris Little

    Hi, My wife andI bought land on 27/10/2015, and built a house on it that was finished and given an occupancy certificate on 22/6/2017. We intend to keep out present home as it was bought pre 1985. How long have we got to make our newly built home our principal place of residence to avoid CGT on it?

    Thanks

  9. Ken

    Hello
    My wife and I have had a property since 2003 – we paid $165K – rented out the whole time
    if we sell we should get around $360K
    Is there any cpi allowance applicable to the gross gain.- ie for the length of time we had the property
    We are now both retired and do not have any taxable income as such
    Cheers
    Ken

  10. Dimitra Zuniga

    Hi Adam,

    If I bought a house in 2007 lived in it till 2011 relocated overseas so rented it out and sold it in 2016……but purchased another property in 2015 can I still choose which PPOR I select for CGT especially if I was a non resident for tax purposes during 2012-2013??? I sincere look forward to your reply.

  11. David

    Hi Adam, i have a question like the one number 13. If bought a property and some1 already rented in there, so if i keep it rent for 6yrs and move in for 12months and sell it. Am i still free from CGT and what the different between move in before rent it out and after rent it out. Thanks in advance.

    Cheers

    David

    1. Adam Sweeny Post author

      Hi David, you have to have lived there before you rented it out in order to qualify it as your PPOR. See strategy #2.

      Cheers, Adam

  12. Steph

    hi, I have been googling for two days now and came across this post which has the answers to all my questions esp points 3& 5. And it is also easy to understand. Thanks for this informative article.

  13. Patrick

    Hi Adam, if a property bought in 1976 for $50,000 and owner died in 2016 but added his wife on the deed in 2014
    Owner ( wife) want to sell the property now and have a 2 Million dollar offer.
    Property market value in june2016 ( date of death) was $1.800,000
    My questions are if step up in basis is %50 from market value at time of death or the contract price ($2.000,000)?
    is it %50 tax free because they lived there over 12 months?
    Does $500,000 also tax free ?
    Forget to mention that property is in foreclosure for $1.200,000 for a loan against the property ( principle is $780,000 and interest and fees appx $4.00,000)
    Also any way to contact you think help me in this case ? Do you work in New York area ?
    Just want to mention our accountant don’t really know what I’m talking about and most info I got online
    Best regards,
    Patrick

  14. Sam

    Hi, how many properties can I buy and sell in the same year (owner occupier)? I am considering buying, living in and renovating then selling to make a profit. I am looking at doing this to 3 properties this year. Will I still remain exempt from CGT?

  15. Elizabeth

    Hi Adam
    Your replies are very useful. Thank you so much!

    Our property was bought in 1987. I and my husband lived in it for 7 years before we moved overseas for work. It has been leased out since our move. My husband died a year ago. I plan to move back to Australia. I am considering living in the property after coming back or sell it first to buy a newer one before going back.

    If live in the property: When the property is sold, will it be exempted from capital gain tax for being my principle place of residence (PPR)? How long do I have to live in it before I can claim PPR.

    If selling it first to buy a newer one before going back, what happens to the capital gain tax?

    Best wishes
    Elizabeth

    1. Adam Sweeny Post author

      Hi Elizabeth,

      Sorry for your loss. Your property is exempt from CGT for up to 6 years after you rent it out (see point 4). So if you lived there from 1987 to 1994, then the property was still your main residence up to 2000. You are therefor only liable for the capital gain from 2000 to 2017, or the proportional total gain from 1987 to 2017 (17 years / 30 years). Moving back in will only make it your PPOR from that date forward.

      Cheers, Adam

  16. Angie

    Hi Adam,

    Thanks for all the tips! I wish I read this last year when I rented out my unit.

    With the number 3 “Revalue before you rent it out”; if I missed the opportunity initially, is it possible to get this revalued today? The tenant is moving out so there will be some vacancy and time to make some home improvements.

    Please let me know, thank you!
    Angie

  17. Kat

    Hi Adam,
    Thank you for such an informative article.

    Could you please clarify whether, when moving into an investment property, a valuation will affect the Capital Gains Tax payment? We have an investment property that we purchased in 2013 for $550k and have rented for almost 4 years. We are considering moving into it for 12 months before selling (to developers) for hopefully 1.2m. It has currently been valued at $950k. My question is- will our Capital Gains Tax be worked out solely on the time spent rented/time spent as PPOR (eg 48/60 months). Or is it important to get a proper valuation before we move in (eg $950k vs $1.2m)- will the CGT be affected by this or is it only based on time percentage?

    1. Adam Sweeny Post author

      Hi Kat,

      Great question. Both are legitimate methods to calculate the capital gain. In your example, using the valuation would leave you with a 500k gain (950 – 550), and proportioning the time rented vs owned would leave you with a 520k gain (1.2m – 550k)(48/60). It would then make sense then to use the valuation method to show a smaller gain. Be sure to check with a tax professional and make sure that the valuations are reliable.

      Adam

  18. Andrew and Lee Keene

    My daughter died earlier this year age 40 and left her daughter age 7 as her guardians. Our daughter also left her daughter with a sum of approx $A450,000 in life Insurance and Super. Being a minor she can earn very little interest while in a bank trust fund without paying tax.
    If we could buy a block of land with this money in her name would she have to pay Capital Gains Tax when she is 18 or when she starts work if she sells the land? If so how much?

    1. Adam Sweeny Post author

      Hi guys, sorry for your loss. The most important part is setting up the purchasing of the land. There are several options here e.g. her name, adult trustee, bare trust etc. You need to make sure that when she assumes ownership later on that the transaction is not taxed as a CGT event. I am no expert here, you should go speak to one about setting it up properly. If she sells the land then I believe normal CGT rules apply.

  19. Yi

    Hi,

    I have a question regarding the six year rule. I bought a unit 2011, lived in it for eight months then moved overseas and rented it out. I have no other properties. I’m still overseas but my tenants have moved out so I want to claim it as my PPOR again so that I can get another six years of CGT exemption. I’ve set up the utilities, moved my things in but I’ll only be staying there when I visit as my work is overseas. Is this enough to claim it as my PPOR?

    1. Adam Sweeny Post author

      Hi Yi,

      That would be for the ATO to determine should you decide to sell. I can only recommend that you tick off as many items from the list in point 6 as possible and additionally consult with an expert with experience in such matters.

      Cheers, Adam

  20. Vicki Miller

    Hello Adam,
    We bought an investment property In 1990 for $330,000. It has been rented the whole time. The house is currently valued around $2,600,000. If we sell we would pay a large CGT. Can we avoid the tax by demolishing and building a new home to live in by using the proceeds from our principal place of residence. We are aged in our 60’s?
    Thanks
    Vicki

    1. Adam Sweeny Post author

      Hi Vicki,

      Demolishing a property is technically a CGT event, but if you just build a new house and move in then there is no capital gain to be taxed. If you sell later on then it gets complicated.

  21. Pooja

    Hi Adam,

    This is a really useful article!

    I just wanted to confirm that when I am buying my first property, if i rent it out for 1 year and then move into it for say the next 5 years and sell it then that I am not liable for CGT? It will be my main (and only) residence and therefore would not be pro-rated for the period where I rented it out?

    Thanks,
    Pooja

    1. Adam Sweeny Post author

      Hi Pooja, if you rent it out straight away then the property is seen as income producing, not a main residence, and you will be liable for CGT until you move in. See point 2.

  22. Deborah

    Hi Adam,

    Thank you for sharing your wisdom with so many.

    My husband and I bought a home 15 years ago in which we lived in for 9 years. We paid $102,000 in 2002. In the first few years of our living there, we added a room, garage, irrigation, driveway etc., spending around$50,000. In 2010, we bought another home and rented this one out hoping the market improve so we could sell and not lose money. We feel we can get around $175,000 now after spending another 15,000 for a new roof, painting, flooring, etc. My question is, will we be able to deduct the $50,000 we spent for renovations when we lived there? We really have around $167,000 invested in this property. Thank you so much. Deborah

  23. Kam

    Hi adam, i have bought property on 2016 Nov. I treated this property as my PPOR. And this is the only property i got. Under 6 years rule, if i rent out after 1st year i have been lived in, can i claim depreciation and mortgage interests expenses during 2nd year to 6th year for tax return. If i decide to sell in 6th year, am i free for CGT?
    Thanks
    Kam

      1. Kam

        Thanks for the reply Adam, appreciate it

        Wish you could answer my second question.

        Going forward the case above. If i decide to buy a land at year 2.

        -Leave the land vacant for next 5 year
        -rent out my original property from year 2 – year 6.

        Could you please correct me if my understanding is wrong.

        1. I am able to claim interest expense ( mortgage ) & building depreciation from year 2 to 6 for my tax return
        2. I am able to claim the interest expense ( mortgage ) for land from year 1 to 5 time equivalent to 1st property year 2 to 6
        3. 5 year after, ( purchased Land ). I decide to start construction and build the house. Before construction completed, if i decide to sell property 1, property 1 don’t entitle CGT.

        However, completion new house also not entitle CGT if i move in straight away and stayed for 1st year after construction completed.

        Many Thanks
        Kam

        1. Adam Sweeny Post author

          Hi Kam, the only responsible advice I can give you is to go speak to a specialist about your specific situation and plans.

          Best of luck
          Adam

  24. Bart Cross

    We have demolished a property and are building two town houses on the land (which will be subdivided). Our plan is to live in one of the two houses (we are retired and aged 71 and 72 and this will be our only property) and sell the second house to cover the costs of the build. What are the capital gains implications? We bought the original house and land in 1982.

  25. Carlos Reyes

    Hello Adam
    This is very educational but i don’t know if you can help me.

    I bought a investment property (house) in 2006 with the price of $388000.00 and I would like to sell and the Real State agent said that I can ask for $510000.00. At this moment only my wife is working (I lost my job about 3 years ago). The house is in the both name. After I made the difference sell and cost + cost to sell i would get about $90000.00.
    My question if you can answer is How can I calculate the CGT to paid after I will sell the house? I am allow to have the 25% of this tax when I am not working?

    Thank you and I waiting for your response (We need to sell the house because for financial situation).

    Carlos and Sonia reyes

  26. Anna

    Hi there,

    I have a property that I brought in 2004 which I rented out. in the year 2012 we stopped renting the place out and had it rebuilt, in which in 2013 I moved back in to live in until 2015. How would the Capital gains tax work?

    Thanks

  27. Craig

    Hi Adam,

    Thankyou for providing such a great website.

    We purchased a property in Canberra for 410k and rented it for 2 years. In 2010 we moved into the house and completely renovated it and have lived in it for over 6 years. We are now selling the house for 700k.

    Are we only liable for the capital gain for the value of the house for the two years it was rented and not for the value of the renovated house? If the house was valued at 450k when we moved in is that the figure the capital gains is calculated from?

    Regards

    Craig

  28. JOHANNA

    Hello Adam

    I bought an investment property for $200000 in 2001 and want to sell it. Are there any ways to reduce the CGT payable. It was my PPOR for a period of months around 2014.

    Is it possible to have house revalued now and then sell it at a loss in a few months to reduce CGT or does this only apply if the property was a PPOR BEFORE becoming an investment property?

    Jo

    1. Adam Sweeny Post author

      Hi Jo,

      The capital gain is the sale price minus the purchase price (and incidentals and ownership costs, see section 7). Not sure what a valuation now would achieve, this only makes sense for the times when the property changes to and from being your PPOR.

      You will get the 50% discount plus possibly a reduction for the period when it was your PPOR. Speak to a tax accountant.

      Regards,
      Adam

  29. AMY

    Hi

    We purchased an investment property for $195000 in 2002 (NSW). It was rented out immediately and still is however it was our PPOR for 6mths in 2015. It was rented out again following this period.

    We estimate it’s worth at present is around $500 000. We are looking at either knocking down the existing house and rebuilding either another house or a duplex and selling.

    Does it make any difference if we have the property revalued now as it will be rented for around 6 – 12 months further before the development would start.

    How do we calculate the CGT we will pay when we sell? We are hoping to spend $600k building and hoping to sell both sides of the duplex at approximately $1.3m total.

    1. Adam Sweeny Post author

      Hi Amy,

      See Section 7
      Capital Gain = Sale Price – Cost Base
      In your example: 1.3m – 195k (purchase price) – 600k (renovations) – incidentals & ownership
      Capital Gain would then be 505k – incidentals & ownership (when applicable)

      You will get the 50% tax discount from Section 1 plus possibly a reduction for the 6 months when it was your PPOR. Speak to a tax accountant.

      Regards,
      Adam

  30. Grace

    Hi Adam
    We purchased a property for 340 in 2014 and since then maker has dropped considerably in WA and it’s now valued at 300-310. It’s been vacant for a month. The rent has dropped and we will have to chip in a large difference to meet the repayments. If we sold it for a loss of 30k do we still pay CGT on the 3 years it’s rented out?

    1. Adam Sweeny Post author

      Hi Grace, if you’ve made a capital loss then there is no capital gains tax to pay as there is no gain. You can also offset the loss against other current or future capital gains, see more here:

      https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-net-capital-gain-or-loss/
      https://www.ato.gov.au/Individuals/Investing/In-detail/Capital-gains-and-losses/Claiming-losses-from-the-disposal-of-investments/

      Regards,
      Adam

  31. Marisa

    Hi there,
    Just wondering, we have lived in our home now for just over 17 years in NSW. We are thinking of purchasing an investment property in QLD and was wanting to rent it out, then when we retire, say in about 15 years, sell our main residence in NSW, and settle down in our rental in QLD. Would we have to pay CGT if we do this? Thank you for all your help.

    1. Adam Sweeny Post author

      Hi Marisa, if the NSW property has always been your main residence then you won’t have to pay CGT when you sell. Obviously the QLD property would be liable during this time but it doesn’t sound like you’re planning to sell it anyway.

          1. Marisa

            So my understanding is if we eventually move into our QLD and retire there we don’t pay CGT unless we sell it…..right…..thanks

  32. Melissa smith

    Hi Adam,

    We brought a property in 2001 for $85k we lived there until 2009 when my husband was transferred we refinanced to buy a property in the town we moved to with the value after $40k of renovations was then $180k, we then started to rent the property and the market in the town hit a major slump. We have recently accepted an offer on the property of $160k. My question is can we apply the 6 year rule to this property and can we use the refinance value or do we have to use the original purchase price value, the renovations were done while we still lived there and were not expecting to move, so I don’t have any records of the cost of them.

    1. Adam Sweeny Post author

      Hi Melissa, read the example from strategy #3 – it’s almost identical to yours. The property was no longer your PPOR when you moved in somewhere else, value was 180k. Sell price is 160k. You could increase the cost base by the 40k renovations too. So then you’d be looking at a 60k capital loss to reduce your taxable income with. Not sure why you would want to use the 6 year rule. Be sure to speak to a tax accountant about the quality of your valuation and renovation cost records.

  33. Jane Newton

    Hi Adam, I did not know all this before so thankyou so much for the info. I bought a property renovated the bathroom and put built in wardrobes in each room . I then have rented it out for the past 2years. It still is being rented but I am considering selling in the near future. What if I get an independent evaluation now and dont sell it for another 6 months? Will the value be taken from now until I sell it in 6 months. Or have I missed the boat in reducing capital gain. Jane

  34. AListair

    Hi Adam,
    just wanted to check if I sell my home within 12 months of buying (PPR) that I will not incur any CGT liability. This is due to unforseen work circumstances.

    1. Adam Sweeny Post author

      Hi Alistair,
      If it is your PPOR (you moved in right away and you live there) then yes it is exempt.
      Regards, Adam

  35. Aylah

    Hi Adam,
    I purchased residential vacant land in 2002 during the development stage in a new estate for $89,000 for the intention or purpose of building a house on it as my PPR. It is presently valued at $550,000 with a debt of $115,000. In 2004, I also bought a house which became my PPR and subsequently sold it in 2013 after I lost my job. I’m not working at the moment and hold an Australian Pension Card. The debt is being serviced through my small pension (family is looking after me). I’m 47 years old and I am looking to sell the land and invest in a Display Home around $550,000 with a 7% leaseback over 2 years. However, I am unable to get any Australian financial institution to fund this sort of transaction given that I’m not working. I might be able to fund a Display Home with leaseback myself from the profit of my land if there is no Captial Gains Tax.
    What strategies can I use on vacant residential land to be fully exempt CGT instead of 50%.
    Is there a lender that you know of that would entertain such a property deal?
    Thanks for your advice in advance.
    Aylah

  36. Yonas

    Hi Adam,

    We are currently renting while building our first home which will be completed soon. We are undecided yet whether to move to our new house and give up the place we are renting right now or move to the new house for 6 months and keep the place we are renting. The place we are renting right now is very convenient with good school for kids.

    Could you please advice whether we will be fully exempted from CGT when we sell the property If I move to the new house (just myself) and stay there for 6 months while keeping the place i am currently renting. after 6 months we are planning to rented out our house or sell it.

    1. Adam Sweeny Post author

      Hi Yonas, I’m assuming the property has been bought in both of your names, which would mean one of you moves in and the other one doesn’t. Sounds like a bit of a grey area to me. Make sure you tick off everything mentioned in strategy 6 to prove that you were living there. And probably best to check with an expert as well who might have experience in similar scenarios.
      Cheers, Adam

  37. amy vink

    Hi Adam your information is really helpful and we would love some advice. We bought a property in 2001 for 73000 in Qld and moved in for a year in 2002 and renovated it completely, when we moved out it was worth around 200, 000 with the boom. It has been rented ever since and we have no principal place of residence – we have been overseas and living with family and in our organizations accommodation. we are now back permanently and looking at selling the property it is worth around 350 000 but seriously cannot work out what tax we would be up for – are we able to claim it as a ppor since we have no other home of ours we live in? or are we able to claim 6yrs reduction on capital gains tax – any help you can offer would be brilliant. thank you Amy

    1. Adam Sweeny Post author

      Hi Amy, I can’t tell if you moved in right away or not, if not then for this period until you moved in you would be up for CGT, plus all the appreciation after more than 6 years of renting it out while you were overseas (see example 4).

  38. nicole

    hi i have purchased an investment property 5 years ago and have just purchased land (isn’t registered for a few months) if i were to move into my investment property within the 6 years of purchase will i be able to avoid some CGT? if so how long will i need to live in it and will it be an issue once my land is registered? this will also be investment

    thank you,

    1. Adam Sweeny Post author

      Hi Nicole, if you didn’t move into your investment property after buying it then you will be up for all CGT up until when you move in (see example 2). Moving in won’t help you avoid CGT in this case though.

  39. Tom

    Hi Adam
    Great article with some useful tips, thank you!
    I own 2 investment properties and I also own the residence I’m living in.
    I’m about to sell my primary residence but keep the investment properties.
    My question is, should I order a depreciation schedule on the primary residence for tax purposes?

    1. Adam Sweeny Post author

      Hi Tom, a depreciation schedule is normally something you use to get tax deductions on your investment properties. Not sure how it would be useful for your main residence.

  40. Ben

    Hi, great article thanks. Hoping you could please assist. I have a PPOR which is currently being renovated. We want to purchase another PPOR so we plan to have our existing PPOR valued. But the issue is if we have it valued during the renovation process it wont be worth much, as opposed to in a few months, when it would be worth a lot. Do you know how long you have in which to get the valuation done on the existing PPOR when you purchase a new PPOR?

    Thanks

  41. Kate

    Hello Adam,

    I have bought a property which is my main place of residence. I have lived in this property for 9 months.
    After that I had taken in tenants and they lived there for 1.5 years. Then the house was vacant for 6 months.
    Currently, I have new tenets there who lived there for 2 years.
    How long I can keep this property to avaoid paying CGT? Does this mean that before 6 years are up I can have tenants living there for another 2.5 years? What will happen after that. Could I after 2.5 years when I will reach my 6 years move into this house and live there for some period of time to be considered eligible for 6 years again?

    Thank you
    Kate

  42. John

    Hi Adam,

    I live in my main resident now, I purchased a land an I have my settlement in July 2017. Once the land settlement is done and if I want to sell of my main resident, will I need to pay the CGT for my main resident when I sell after the land settlement? Please advise?

    Thanks,

    John

  43. summan chand

    Hi Adam
    I live in Adelaide and bought a house and land package in Melbourne which I wanted my daughter to live in she is a uni student in Melbourne. Paying rent was too much so I thought to build a house there for her. Her circumstances has changed she has transferred to Brisbane university. So I want to sell this house. It cost me about $390 grand to build ( land and house package ) it will be complete in April 2017. If I sell it without renting it, will I have to pay capital gains tax , and if I have to pay is there any ways I can avoid paying this tax since no one has lived in it .

    1. Adam Sweeny Post author

      Hi Summan, the only way to not pay any CGT is if its your main residence or if you don’t make a capital gain. If this is not the case then see the strategies in the article above on how to reduce it as much as possible.

  44. Vicki

    Hi,
    I own a property that is in my name have been living in it with my husband and children.
    My husband and I have purchased a house and land package 99% husband 1% myself and claimed PPOR.
    My Husband will be moving into the property when built for a short amount of time then he will be renting it out ,with the intention of selling in the next few years.
    WIll there be any capital gains costs????
    THankyou in advance

    1. Adam Sweeny Post author

      Hi Vicki, unfortunately I am not familiar with how your different ownership setups between properties will affect main residence status and CGT. Best to speak to a professional with experience in such scenarios.

  45. Maria

    Hi , Excellent site!!!! Lots of useful information,

    Although having read quite a few of the articles and watched some of the videos I still have a query regarding cgt.

    Our scenario: Family bought a property in Melbourne as rental investment. As our daughter was living in Mebourne she asked if she could rent out the property herself (even though she was a quarter owner). Property was sold 7 years later. We claimed the property as a rental property and used negative gearing,

    Can this property be treated as my daughter’s principal place of residence at any time? I am confused and was told that this is not possible because it can not be treated as her ppr as we claimed the rental costs. Is this correct?

    1. Adam Sweeny Post author

      Hi Maria, sorry I know I told you to ask again here but that’s a complex situation that I’m not confident in giving correct advice on. If you prefer online help I can recommend posting your question on this forum:
      https://www.propertyinvesting.com/forums/help-needed/

      Terry W for example is extremely knowledgeable and could possibly help you out. You will probably have to give a bit more information though, for example who exactly is/are the owners of the property, do you or your daughter have another property, what exactly do you mean by “we claimed the rental costs” etc

      Best of luck
      Adam

  46. Ethan

    Hi Adam

    We are currently building our new house in Melbourne. We are owner builder and this is the only property we owned. we will be moving into the house as soon as the house is ready. What do we need to to if we want to sell the house without getting the CGT? Is there a set time we need to stay in it before we sell?

    Thank You

    Ethan

  47. Naomi

    Hi Adam,

    Hoping you can shed some knowledge. I have just gone 1/3 in a property which has a house on it. The plan was to rent out the house (practically paying for itself) whilst plans and permits are drawn up to subdivide and build 3 townhouses. 2 of the 3 investors plan on living in the townhouses, it is likely the 3rd will be sold. Will capital gains need to be paid when the original house is demolished or only if and when the townhouses are sold? Thanks Naomi

  48. Joel

    Gday

    Can you just clarify please: are all deductions that relate to a rental property factored into the reducted cost base? Or just those that apply to capital works?

    Ie if I claim a $5000 deduction for depreciation on a gararge – ie capital works – that $5000 is taken off the cost base.

    What if I have to make repairs for a window that a tennant broke? Or I need to purchase something for the property like new blinds or furniture?

    Thanks

    1. Adam Sweeny Post author

      Gday Joel, repairs are claimed as 100% deductions in the year you carry them out – there is no depreciation claim, and no change to cost base or capital gains (the exception is initial repairs which cannot be claimed as deductions, and increase the cost base).

      Purchasing something new is capital works and you can claim depreciation for it over several years. If you sell though, the depreciation will be subtracted from your cost base i.e. increase the capital gain.

      Section 7 has some more information on this.

      For the difference between repairs and capital works, check out this information from the ATO:
      https://www.ato.gov.au/General/Property/In-detail/Rental-properties/Rental-properties—claiming-repairs-and-maintenance-expenses/

      Be sure to watch the videos as well

  49. Russ

    Hi Adam, this article was very well set out, but i have still been unable to find information on a specific CGT strategy that a real estate agent told me about.

    I purchased an investment property with tenants in it, but i did not claim it as my main residence because i live wirh relatives and the property is tenanted.

    Different to the example of Bill in the article,
    I was told if i move into this property myself as a main residence, and get a property valuation done on the day i move in – then i will only be assessed for CGT for the period from day of purchase until the day i moved in (because this is when it was tenanted).

    After this date of moving in (and getting a property valuation done) – i will not be charged any CGT from that date onwards.

    Is this strategy correct?

    Regards.
    Russ

    1. Adam Sweeny Post author

      Hi Russ, great question, unfortunately it doesn’t quite work that way. Getting a valuation is useful when the property is your main residence first, and then you rent it out (see strategy 3). Your situation is however exactly like that of Brad in strategy 2. CGT will be calculated as a proportion of the days you rented it out to the days it was your main residence. Here’s the relevant Act and another example:

      http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.185.html

  50. Demi Kavaratzis

    Hi Adam,

    I have a property (Property 1) which was my main PPOR for the last 10 years. Within the last 3 years I rented 2/3 of the property to my sister. I just bought another property (property 2) with my husband. If I was to keep both properties for 5 years and stop renting the first property, will that completely exempt me from CGT from both?
    Also, at the same time I am thinking of buying another property (property 3) and selling it after 12 months. If I was to move into the new property for 6 months will that also exempt me from CGT from that property too?

    Looking forward to your reply.

    1. Adam Sweeny Post author

      Hi Demi
      All 3 properties would be eligible to be your PPOR, however you can only treat one property as your main residence for the periods where you own more than one. See strategy 5 for tips on making the best possible choice for CGT purposes.
      Cheers, Adam

  51. Valerie

    Hi Adam,

    Me and my partner bought an investment property in 2009. We lived there for 6months to qualify for the first home owners grant. Then after that 6 months we moved back to our parents house and rented the property for about 3 years. After that 3 years we moved into the property again. At that time, we bought a block of land and started building after about a year. So we lived in that property for about a year and half. Once the new house was completed we moved out of the property and rented it out again for about 2years. Now we have decided to sell that property. So my question is can we claim that investment property as PPOR for that 3year period that we rented out before buying the land?

    1. Adam Sweeny Post author

      Hi Valerie, yes you can. You could even claim it as your PPOR up until you sold it. The property remains your PPOR for up to 6 years while being rented out (strategy 4), or until you choose to treat another property as your main residence (strategy 5).

  52. Nicole

    Hi Adam

    We purchased a vacant block of land 3 years ago and are currently building a house on it. We plan to sell our current home which we have lived in for over 15 years.

    Is there any CGT on the new dwelling if we sell that down the track? If so, how is it calculated or based on, additionally if there is a CGT event are there any exemptions?

    Many thanks

    Nicole

    1. Adam Sweeny Post author

      Hi Nicole

      For the last 3 years you have to decide which property you treat as your PPOR. The other one will be liable to CGT in this period (with a 50% discount of course). See strategy 5 for more info.

      If you decide to treat the land as your PPOR, here is some useful information and examples from the ATO about how it works:
      https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-land-as-your-main-residence/
      https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/What-is-an-ownership-interest-/

      Regards
      Adam

  53. Suraj Neupane

    Hi Adam,
    If I buy land today and sell my existing one and only house and construct a house in the land (which I bought prior to selling the house) and move into the new house, will I be exempted from the CGT for the income from selling my house? I have lived in this house for 4.5 years already. I would love to hear from you.
    Regards,
    Suraj

    1. Adam Sweeny Post author

      Hi Suraj
      Yes you can treat your house as your main residence for the entire period. Note then that for the overlapping period when you own both properties, your new land/house will be liable to CGT in this time (unless its less than 3 months, then it is also exempt).
      Regards
      Adam

  54. Mari

    Hi,

    I have:
    – owned a property for over 10 years
    – lived in it for the first 6 months and for a further 8 years, more recently I moved in with my parents at their place of residence due to illnesss
    – i have let some refugees live their and recieve no rental income. They just need to pay the water and electricity bill
    – the house is over 70 years old and is falling apart
    -market value of house is 700,000

    I would like to knock this house down and build a new house on this land.

    In the mean time I would like to buy another property that is 800,000 and live in that until development is completed. ie put $30,000 towards a mortgage instead of renting.

    Can I avoid capital gains? or what will my capital gain liability most likely be.

    Thanks!

    1. Adam Sweeny Post author

      Hi Mari, if that was your only property then it is automatically your PPOR and therefor exempt from any appreciation up till now. However, once you buy the second property then only one of the two can be your main residence from that moment forward. This is only important if/when you sell one of them. At that point you would then need to decide which of the two you treat as your PPOR (CGT free). See Strategy 5 for more info.

      All the best,
      Adam

  55. Jon

    Hi Adam, Cheers for the info,
    ok, i have an investment property for 3 years, 1 paid $530k & sold for 600k,= 70k profit,
    because i have had it more than 12 months, my CGT would be 35k plus 15k i have claimed for depreciation over 3yrs = 50k
    it was approx 15k for stamp duty & 15k real estate fees to sell the home,=30k
    so GGT 50k minus stamp duty & realestate fee 30k = 20k
    if i didnt work for the tax year i sold the property, my incombe would only be the CGT of 20k, so i would only have to pay a couple of hundred dollar tax, as the 1st $18.200 is tax free,

    is this calculation correct??

    Thanks Jon

    1. Adam Sweeny Post author

      Hi Jon, the discount is calculated at the end. So 70k profit + 15k depreciation – 15k stamp duty (when you bought) – 15k real estate fees (when you sold) is an overall gain of 55k. Now apply the 50% discount and you have 27.5k in taxable income leftover. Assuming no other income then you’d owe $1,767 in tax i.e. your net profit would be $53.233. Nice work!

      Don’t forget you can also subtract legal fees from when you bought the property.

      Cheers, Adam

  56. Brad Reiher

    Hi Adam,
    Great article, thanks for the insights.
    Struggling to get a handle on the applicability of capital gains and thought you might be able to give some advice. I bought my apartment in 2009 and when I bought my house and moved in, in 2013, I rented the apartment out. I’m now thinking about selling the house but wondering if I would avoid capital gains tax by moving back into the apartment for a period of time. So my questions – a) is this possible and b) if it is, how long would I need to move back into the apartment for to avoid it?
    Thanks, Brad

    1. Adam Sweeny Post author

      Hi Brad
      Do you mean you are thinking about selling the apartment? There’s no need to move back in since you only moved out 3 years ago i.e. less than 6 years. You could claim your apartment as your PPOR up until now instead of your house (see the example in strategy 5), but note that this would make you liable for CGT on your house between 2013 and now – should you ever sell. Other options would include paying CGT on the period between 2013 and now, or looking into refinancing.

      1. Brad Reiher

        Yes, thinking of selling both properties, but wondered if moving back to the apartment for a period of time before then selling it as well as the house would avoid the CGT (because we have been renting it whilst living in the house). Also, what do you mean about refinancing? How would that work?

        1. Adam Sweeny Post author

          Hi Brad, like I already said that won’t change anything because its been less than 6 years. You still need to choose which property is your PPOR and which you want to pay CGT on. For refinancing see strategy 10.

  57. Estelle

    Hi Adam,
    Great article! I’m hoping you can clarify this for me?
    We bought our home in the UK in 2000. Lived there until 2010 when we moved to Australia. Rented the house in the UK and rented here for four years before selling.
    The valuation when we left the Uk was £700k, we sold for £600k
    Because It was our only bought home in those four years and as such deemed our PPR do we have a capital loss for tax purposes or not?
    Because of the loss, can we claim it if it was not our PPR (although it once was of course) and instead an investment?
    Thanks.

  58. Christa Wallington

    Hi Adam,

    We have a special situation. We bought a home in Sydney in 1994 and then lived in it until 2010. Then we rented it out. We have been living Overseas for the last 5 1/2 years. We are planning to stay another 5 years. So the property has been rented for almost 6 years. IF we move back and move into the house, say in 2023 which might actually establish a capital gain of almost 1 million since we bought it, 600.000 since we rented it.

    If we sell in 2025 would be taxed? Since it has been our Primary residence for 2 years? Thank you!

    1. Adam Sweeny Post author

      Hi Christa,

      The property remains as your PPOR until the 6 year mark, after which you will be liable for CGT. Best thing you could do if possible is move short term back in (see strategy 6), in which case the property would remain as your PPOR. If that won’t work then at least make sure you have the property revalued at the 6 year mark. You will pay CGT according to the example in strategy 4.

      Best of luck
      Adam

  59. Tushant Nayyar

    Hi there – we’re planning to buy an oldish house and rent for an year to begin with knock down and rebuild it . Any ideas how increase in value due to rebuild will be treated for capital tax assuming say we live after rebuild for 6-8 yrs and then sell it

    Thanks for your help

  60. Harjinder

    Hi I have question please see my scenario below:
    I am living in property A from last 6 years
    Brought a property B moved in property B for 1 year and then sold it and move back in property A do I have to pay CGT?

    1. Adam Sweeny Post author

      For the period where you owned 2 properties you can choose which property you want to treat as your PPOR. The PPOR is excempt from CGT. The other will be liable for CGT during the 1 year period.

  61. Chris Jones

    Great Article, I purchased a house in 2001 for 240k as an investment property (House 1) which was managed by DHA. We maintained tenants in there under DHA for 12 years and then after that managed it though a property manager privately. In 2015 we moved back into the investment property as a principal place of residence but purchased another property (House 2) in May of that year which remained vacant until we sold the original investment property in May 2016 (House 1) for 450k and we then moved into (House 2). Our overall profit form the sale was 210k from the original purchase price. Two Questions I have are; 1. will the CGT be 105k and then we need to try to reduce from their based on the information in your article and 2. Is it possible to designate the house we sold (House 1) as the principle place of residence to avoid capital gains and nominate to pay capital gains on (House 2) when we eventually sell.

    1. Adam Sweeny Post author

      Hi Chris, yes after the 50% discount you are looking at 105k.
      Between May 2015 and May 2016 you have a choice as to which house you wish to treat as your PPOR.

  62. Krish

    Hi Adam,
    Thank you very much for the very good article.
    I have two properties and I am using both properties for my personal use.
    But I rent it out the part of home (granny) in the second property from the purchase date. Now I plan to sell the second property. In this case, how CGT would work?
    Thanks in advance.
    Kind regards,
    Krish

    1. Adam Sweeny Post author

      Hi Krish,
      If you choose to treat the first property as your PPOR then you will need to pay CGT.
      If you choose to treat the second property as your PPOR then you will need to pay CGT for the proportion of the floor area that is set aside to produce income.
      Adam

  63. Jacqueline

    Hi Adam,
    Thanks for all the great information that you provide. I am not sure if you can help me but here it goes.
    I have two acres with two houses on one title. I have managed to subdivide into 2×1 acre lots with a house on each. (in titles office this week). This has been my ppor for 13 years and my mother used to live in the other house. My cost base for each is $198000.00 I intend selling the one that mum lived in this July for approx $570000.00 giving me a cgt of $186000.00. Can you see any way of reducing cgt? Can I do what you mention in Point 3 by having it valued now, then rent it out. Then sell using cost base of valuation just before I rent it out instead of using original cost base? I own both blocks. Thanks in advance.

    1. Adam Sweeny Post author

      Hi Jacquie, the most obvious reduction is the 50% discount for owning the property more than 12 months. What will also be important is how you’ve calculated your cost base. Check out this page from the ATO and the examples to make sure you’ve included everything:
      https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Subdividing-and-amalgamating-land/

      Strategy 3 unfortunately won’t help in this situation because it’s not your PPOR before you would rent it out. Other than that, perhaps a combination of options 9-11 could be helpful (offset/refinancing/sell in july). Good luck with it all, let us know how it works out if you get a chance!

  64. Maree McMahon

    Hello Adam,
    If I rent a part of my Principal Place of Residence and negatively gear part of my interest payments, how does CGT affect me when I sell this property, please?
    Many thanks
    Maree

  65. Steve

    Hi there Adam
    with the federal election around the corner, what would happen in this scenario?
    I purchased and settled on a rental property in June 2016.
    If Labor win government, will I still be able to claim tax deduction on 100% of the expenditure? Also, if I sell the property in say 5 years time, will I still be liable to 50% of the capital gains (assuming property price increases)??

    1. Adam Sweeny Post author

      Hi Steve, I have heard that there are possible changes to the capital gains discount in the works, but it’s the current legislation at the time of purchase that counts.

  66. Briana Walker

    Hi Adam, just wondering if a valuation from a real estate agent would qualify? I had an estate agent value my property before I rented it out. I bought for $200000 and sold for $350000. I lived in it for 5 years then rented it for four. When I rented it the property was valued at $320000. Am I going to have to pay CGT on the whole $150000 or $30000? Thanks, Bree

    1. Adam Sweeny Post author

      Hi Bree, the first thing I’d be thinking about is if you actually claim it as your PPOR up until you sold it, which automatically means you don’t pay CGT (see point 5). Of course this decision depends on if you have another property and its appreciation over the last few years.

      As for the valuation, “it is usually the valuation process undertaken rather than who conducted it, that governs the acceptability of the valuation.”

      https://www.ato.gov.au/General/Employee-share-schemes/In-detail/Market-value/Market-valuation-for-tax-purposes/?page=5

      Was the agent a registered property valuer? That would make things easier. I would go and speak to them. If it isn’t sufficient, then you can always use the comparison method:

      https://www.ato.gov.au/General/Employee-share-schemes/In-detail/Market-value/Market-valuation-for-tax-purposes/?page=9#Comparison_approach

  67. Rhonda Thomas

    I bought my house in 2001 and rented it back to the original owners for less than 6 months before I moved into it and lived in it for about 11 years then rented it out again. I have just sold it do I have to pay cgt? Thanks Rhonda

    1. Adam Sweeny Post author

      Hi Rhonda, you will be up for CGT for the proportion of time you rented it out (see examples in strategies No. 2 and 4). The rental period after you lived there may or may not count depending on if you choose to treat another property as your PPOR in this time (see strategy No. 5).

      1. Maree McMahon

        Rhonda, I think this is a great question. Adam, I know you are obliged to give proper legal advice, however, I am wondering, how would ATO know if it was 16 years ago? I know these days records with most things computerised and linked, it would be important to declare, but for 16 years ago? (These are rhetorical questions as I understand you risk your professionalism and more by agreeing.) And, most likely, Rhonda did not get the house revalued before she actually moved in. It’s also possible that house prices did not vary during that time. Very few people would. I would be inclined to play ignorance on that one, unless she could prove that the value of the property had decreased over that six months.
        By the way, Adam, I find this article informative, thorough and extremely helpful advice. Thank you for this. Maree

  68. Pieter Speel

    Hi Adam, great article, very informative.
    I have an investment property which I hope to sell in the next financial year. Just a query I have, when you say “sell in July”, does this mean putting the rental property on the market in July or actually selling it.(that is the rental property having gone on the market six weeks earlier).
    Regards
    Pieter

  69. Tammy

    Great article, I found the answers I was looking for but now have more questions.

    We purchased our home in 1992 and then over the next 5 years we purchased 4 investment properties. Late 2015 we sold 2 of the properties and purchased an old house straight away that needed renovation. We have had it for nearly 6 months renovating it and will hopefully be finished by October.

    My question is; can this property be claimed as our ppor and if so how soon can we claim this is our ppor (can it be backdated to purchase date) and what proof do we need?

    And would this then reduce our cat on the sale of the property if it was sold before the end of the year or soon after.

    Also does anyone know a good and we’ll priced accountant that is competent in investment tax issues in Brisbane that they could recommend?

    1. Adam Sweeny Post author

      Hi Tammy, if the property is your PPOR then you wouldn’t pay any CGT. This would mean that you moved in right away. Strategy 5 outlines what the ATO requires as proof. If it isn’t your PPOR, then at least hold it for 12 months to get the 50% discount. Strategy 7 also contains some information about how renovations affects CGT.

  70. Gerry Ye

    Hi Adam,
    I am planning to buy my first home and thought to rent it for 2 years. As I want to except cgt I thought to vacant the property during initial 6 months and rent it after 7th month. If I move after 2 yrs and sell it in 2026 do I need to pay cgt?
    P.s.I am renting a property close to work during initial 2 yrs..
    During initial 6 months i am planning to set own property address as billing address in ATO ,banks

    1. Adam Sweeny Post author

      Hi Gerry,
      Yes, if you move in for the first 6 months, then rent it out for only 2 years before moving in again, you will be exempt from CGT as the rental period is less than 6 years (Strategy No. 4). Make sure that you can prove that you moved in for the first 6 months (see Strategy No. 6).

  71. Valerie

    Can you invest the proceeds from the sale of your home into a piece of property that needs to be refinanced and your name added on w/out paying capital gains?

  72. Rithy Touch

    Hi Adam,

    Absolutely great article! I was starting to feel a bit apprehensive thinking I was coming up to the 6 year rule of having to move back into my PPOR. However with your advice on Point 4, I realised that this rule only applied to the time of renting out the property not the amount of time owned. Phew! Some breathing space.

    Thanks and I have bookmarked this for future reference!

    Rithy

  73. Andrew

    Hi Adam,

    Thanks for the great and insightful article. Does the 6 years CGT exemption for PPOR apply if I rent out my PPOR and move to a rental property within the state/city (eg: from western Sydney to north Sydney) for kids education and employment purpose?

    1. Adam Sweeny Post author

      Hi Andrew
      Glad you found it useful. It doesn’t matter where or for what purpose the second property is. You get to decide which property you treat as your PPOR. This is covered in point 5. Be sure to check out the ATO link as well for further examples.
      P.S. Is it your rental property or are you simply renting there? If you only own the one property then it automatically stays as your PPOR for the 6 year period.
      Cheers, Adam

  74. Chitu

    Wow! So clearly written article! Never seen such simple language article in taxation before! If I have not revalued just before renting, is it illegal in requesting valuer to provide 4 years back value?

  75. Dan

    Hi Adam, can you please explain whether the CGT is proportion to shares of the property eg wife and I own 50/50. If we had a capital gain of $100k, are we taxable for $50k each or is it $100k each for both of us?
    Thank you

  76. Dan

    Hi Adam,
    Thank you for writing such well explained article with practical examples. It helped a lot.

    I have a query re:point 5.
    I am about to purchase second property and rent out the first one after living in it for 2 yrs. If I decide to sell this first property after 2-5 years (before 6 yrs) of moving into the second property, am I still eligible for full exemption if I revert my main residence as the first property? Point 4 states “provided you do not choose other property as your main residence. But if the person in example from point 5 has lived in his own Brisbane house for 2 years, doesn’t he have to choose Brisbane house as his main residence hence won’t be eligible for full exemption for CG from his Sydney property?
    Thanks for your reply!

    1. Adam Sweeny Post author

      Hi Dan,

      Thanks a lot, glad the article helped. As for your question, I think you might be confusing your main residence for tax purposes with where you are actually living. Just because you are living in a property doesn’t make it your main residence (for tax purposes). In your example, your first property remains your main residence for tax purposes the entire time and is therefor entitled to a full exemption. This is exactly the same as the example in point 5.

      One important note is that you will be declaring your second property as an investment property from the moment you bought it up until when you sell your first property. Therefor make sure you get it valued first, because a) if it’s appreciating more than your first property then you should reconsider which one you declare as your main residence, and b) you need to ascertain its value at the time it becomes your main residence, so that you’re not up for CGT on any future appreciation

      Hope that helps!
      Cheers, Adam

      1. Dan

        Hi Adam, Thanks for your prompt response. Does it mean that I need to declare the second property as an investment prior to purchase ie pay stamp duty as investment or can I receive home concession and declare second one as investment after settlement.

        Thanks for your time again
        Dan

        1. Adam Sweeny Post author

          Hi Dan, I am not aware of any stamp duty concession for a primary residence vs. an investment property.
          Cheers, Adam

  77. Gerry

    Hi Adam,
    I have a query re: point 3. I have a property in the UK which I purchased in 1997 and lived in as my PPR until 2007, when I moved to Australia. I had planned to sell then, and it was valued at 285,000 pounds. However, the sale fell through and so it was rented out until June 2015. It has just been sold for 282,500 pounds. My understanding from point 3 then is that as the sale price is less than the valuation prior to the rental period, there is actually a capital loss and not a capital gain, and therefore nothing to declare. Is that correct? Many thanks.

    1. Adam Sweeny Post author

      Hi Gerry,
      That’s correct, however I don’t have any info on how the overseas aspect influences the situation. For example were you a resident for tax purposes the entire time, have you been declaring rental income, potential issues with different currency (?) etc… maybe best to get advice from an expert in the field just in case? Unfortunately there’s little to no info on the ATO website on this front.

      If you’d prefer to try to solve it online then you could also try this forum:
      http://www.propertyinvesting.com/forums/help-needed/

      Cheers, Adam

    1. Adam Sweeny Post author

      Hi KJ

      If you have a PPOR and an investment property, then point 3 revaluing before you rent will only help for your PPOR, since your investment property would be subject to CGT right away.

      Regards, Adam

  78. David

    Hi Adam

    You mention that you can start the 6 year rule again by moving back into your property. How long do you have to live in the property before you can move out and start renting in out again?

    Regards
    David

    1. Adam Sweeny Post author

      Hi David

      The ATO does list time as a factor for assessing whether dwelling is your main residence, however they also state “there is no minimum time a person has to live in a home before it is considered to be their main residence”.

      My take on that is that it would come down to a private ruling. I believe the intention of the rule is to allow people who move for work to be able to maintain their PPOR in the short to medium term. If you’re planning to move back in, then rent it out again, and then sell, then its critical you tick off as many items as possible from the list I reference in strategy #6. For grey areas such as this it would also be advisable to engage a professional for advice.

      Cheers
      Adam

  79. Kenny

    Hi Adam. Re point 3, the ato makes it hard to find this ruling and the calculation. Essentially I had a place as my primary residence for 3 years. Then rented it when I purchased a new primary residence. When it first was rented I had it valued at a higher price by a professional firm. I want to use that price a the cost price for when I sold the property. Have you got the ato reference for this section and the full calculation (ie. Do I need to count the days when it was my primary residence). Thanks

    1. Adam Sweeny Post author

      Hi Kenny

      Seek and you will find 😉 They don’t make it hard… in fact they insist that you do it this way! “…you must work out your capital gain or capital loss using the market value of the dwelling at the time you first used it to produce income. You do not have a choice.”

      https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Using-your-home-to-produce-income/?page=4#Home_first_used_to_produce_income

      The example on that page is identical to your situation and should answer all your questions. It doesn’t matter how long it was your PPOR for.

      Cheers
      Adam

  80. Ilham Dawoud

    Hi Adam,
    Thank you so much for the very good article. But please I would greatly appreciate it if you can answer my following questions regarding the Capital Gain Tax
    My parent are over 70 and over 60. they do not own their home instead they are renting.
    But they own an investment property since 1999 , rented it from day 1 and which they almost fully paid (95%)paid) with capital gain almost $300k with the current increase of housing prices.
    My first question will they still pay capital gain tax even if they don’t own their residence,
    Will they still entitled to age pension from the government if they use your method no 10.
    p.s. my parent don’t like much the idea of living in their investment property because they don’t like the area and don’t like being far from their grand kids.
    I would greatly appreciate your answers.

  81. Jessica

    HI,
    When you mentioned that I can “rent out your property for up to 6 years and still enjoy full exemption from CGT.” Do you have a ATO ruling to support this?
    It seems that is not true and I can not find any relevant information from the ATO website.
    Thanks

    1. Adam Sweeny Post author

      Hi Jessica

      You can find this information on the ATO website at the following link:
      https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/

      “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 cease living in it.”

      Also read through point 4 “Monitor your rental periods” in the article above for further details and an example on how it works.

      Regards
      Adam

  82. Fanghua Yu

    Hi Adam,

    Thanks for this! This is a very good article. I am wondering if I could deposit some of the capital gains into my super account(taxed at a rate of 15%) to save some tax as well?

    Also, what would be the tax implication for separated couple, i.e. one stays in a property previously used as investment property, and one lives in the main residency? Both properties are co-owned.

    Cheers

    Fanghua

    1. Adam Sweeny Post author

      Hi Fanghua

      Thanks for your kinds words! Yes you could definitely make super contributions to offset part of your capital gain, this would fall under strategy #9. Note however that for 2015/16 concessional contributions are capped at $30k/$35k for people under 50/over 50. This excellent article and website can help you if you’d like further information: http://www.superguide.com.au/boost-your-superannuation/managing-cgt-with-super-contributions-2

      As for your second question, that’s a very specific scenario and the only responsible answer I can give you is to speak to a professional. If you’d really prefer to get an answer online, you could try posting on these forums: http://www.propertyinvesting.com/forums/help-needed/

      If you do find out more, please feel free to post your findings here, the website readers and myself would be interested to hear more I’m sure.

      Thanks and regards
      Adam

  83. Jason

    Hi there,
    Regarding the paragraph as below, can you please reconfirm that this is true?
    I thought you still can nominate the one which you lived in immediately after the settlement as your PPOR, and enjoy 6 year absence rule, rather than 3 years (6 /no of properties in this case 2).

    “An additional note for those with multiple properties; the 6 year rental period is cumulative between properties. That is, if you own 2 properties with one as your PPOR and then rent both out, after just 3 years CGT will come into effect on your main residence because the cumulative rental period is 6 years.”

    1. Adam Sweeny Post author

      Hi Jason

      Thanks for your comment, it’s a good question and a tricky area that’s for sure. That specific advice was given to me personally by an accountant specialising in the area. I’ve just had a good look around on the ATO website and unfortunately there is nothing mentioning this specific scenario.

      However, a quick google search did provide two reasonably reputable sources agreeing with the cumulative rule on multiple rental properties:
      1. http://www.yourinvestmentpropertymag.com.au/property-tips/how-to-avoid-capital-gains-tax-while-renting-out-your-house-83820.aspx
      2. http://finance.ninemsn.com.au/pfproperty/investing/8123489/rent-out-your-house-and-avoid-capital-gains-tax

      If this is applicable to your situation I’d definitely recommend meeting up with a pro for some personalised advice. If you do find out more, please feel free to post your findings here, the website readers and myself would be interested to hear more I’m sure.

      Regards
      Adam

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