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Do You Have to Pay Capital Gains Tax When Selling Your Home?

Article By Adam Hurwood | | Accounting & Tax
Let’s say you have been living in your only home for many years but now you want to move. You have built up quite a bit of equity so you are likely to receive a large profit when you sell. Will you have to pay Capital Gains Tax on the profit?

Generally speaking, you do not need to pay Capital Gains Tax when you sell your home because it will likely fall under the “main residence exemption” for Capital Gains Tax.

Specifically, you may not be liable for any Capital Gains Tax when selling your home if the following conditions are satisfied:

The home is strictly residential and not used to produce income.

The place has been your home for the entire period of ownership.

Your property satisfies certain conditions related to things like its size.

If you satisfy some, but not all of the above conditions, you may be liable for some Capital Gains Tax, but perhaps not the full amount that would normally be payable. If this is applicable to your circumstances, we would advise you to contact your Altitude Accountant for further details on your potential liability.

There are many situations where tricky Capital Gains Tax questions can arise relating to the sale of a home. For example, suppose you are in the process of moving from one home to another and there is a period of time during which you own two homes at the same time. How do the rules then apply when you sell your first home? Your adviser can provide answers to such questions as the facts relating to each case are important.

When considering whether you may be liable for Capital Gains Tax when selling your home, here are the answers to some commonly asked questions:

What is a “Residence?”

The residence must be mainly residential. It can be a traditional home, cottage, apartment, unit in a retirement village, houseboat, or a mobile home.

What makes a residence your “Main Residence”?

Although there is no single decisive factor here, things you should consider are the type of things that make a residence “a home” in the ordinary sense. For example, some important considerations include:

Are your personal belongings in the home?

Do you have utility services (telephone, gas or electricity) connected to the address?

Is your mail delivered to the address?

Is this your address on the electoral roll?

There are many other factors to consider that vary depending on individual circumstances.

What Is Your Ownership Period?

As mentioned above, the residence must be your home for the whole time you own it in order to be fully exempt from Capital Gains Tax. This is referred to as the ownership period. It generally starts on the date you get legal ownership under a contract and ends on the date of sale under a contract.

There can however be certain complications to this rule. For example, if after you buy a home, you cannot move in straight away for some reason. You generally may have to wait until you move in to claim the place as your home for Capital Gains Tax purposes.

What if I Want to Build a Residence on Land I Own?

There are also specific rules if you build lodgings on land you already own. Generally, land by itself may not be considered a main residence. Only after you finish building a residence and it becomes your home can you claim the Capital Gains Tax exemption when you sell. However, there are certain circumstances where you can treat land as your main residence, which your Altitude Accountant can detail further for you.

If you do find yourself selling your home in the future, please contact your Altitude Accountant for more personalised advice applicable to your specific situation.