Is CGT Avoidable if I Move in my Investment Property before Sale?
Like others, you probably consider your property sale deal profitable. But every time you seal such a deal for profit, your liability towards the ATO arises. Yes, you have to pay the tax on capital gains you have earned through investment. Though you think parallelly about how to Avoid CGT on Property Melbourne. This is a common question that comes into your mind, certainly. You may think that moving into the property before the sale can make it CGT-free entirely. But the exact outcome depends on how you have treated your investment property throughout the ownership period. The idea of living inside it to evade tax liability sounds exciting, but sometimes it backfires.
Deliberation of Moving into Your Property
Moving into your property before its sale cannot entirely remove capital gain but can change its treatment. Simply put, if you have bought it and rented it out for several years, it won’t be your primary residence. After you establish the property as your primary residence, for that period, the Main Residence Exemption Melbourne is applicable. Only a partial CGT exemption may apply for the specific ownership period as per ATO confirmation. Thus, moving into the property before sale automatically cannot avoid CGT liability. Let’s simplify it further with an example below.
If you sell a property for 800000 which is bought for 500000, then 300000 will be capital gain, right? Suppose you have rented out the property for 8 years and moved back into it before sale. Thus, it will not qualify as your primary residence for 8 years but only for the subsequent 2 years. In such a scenario, the entire gain of 300000 won’t become exempt from tax. But it is considered as per the use of the asset over the period of ownership. Aspects of market value rules, ownership structure, and period of absence can make calculation complicated.
Consider “First used to Produce Income” Rule
Investment Property CGT Melbourne assessment with this rule can clarify your doubt. There are two scenarios where:
- Scenario I
If you bought a house, lived in it for 3 years, rented it for 2 years, and moved back before sale. You are likely to get full CGT exemption with reference to the 6-year rule. It allows you to treat your property as your main residence even if it is rented out. However, you shouldn’t claim another property as your primary residence during this period.
- Scenario II
If you bought a property just for rental income but moved in to live for the last 6 months before sale. You cannot get full exemption from CGT but only get partial exemption. For example, if you have rented it for 9.5 years and lived for 0.5 years. Tax will be 95% of the capital gain, and only 5% will get exemption.
Seek Professional Help to Maximise CGT Exemption
Living in an investment property for sometimes before sale can partially reduce CGT liability. CGT Investment Property Accountant Melbourne examines the purchase date, ownership records, rental history, cost base, etc. Thus, Kirpa Tax helps you determine appropriate CGT treatment for investment property.
FAQ’s
Can I avoid CGT liability by moving into investment property?
It only allows you to get the Main Residence Exemption Melbourne for a certain period. The investment period still produces CGT liability for you.
For how long should I live in the property to claim it as my main residence?
There’s no universal period of stay that applies automatically for this. Evidence of genuine residence and other circumstances play a key role in the determination.
Does the 6-year rule apply if my property always remains an investment?
6-year rule cannot automatically help you Avoid CGT on Property Melbourne. It is designed for property that was first your main residence and was used for investment later.
Is it possible to claim investment property as your main residence?
You can’t claim two properties as your main residences unless the 6-year rule applies. However, limited rules may apply depending on when switching residences.
How can I claim 50% discount on capital gain?
On your Investment Property CGT Melbourne, you can claim a 50% discount only when you hold it for 12 months. But it doesn’t automatically make the property CGT-free.
Can I rent my property after living in it?
You can rent it and treat it as your primary residence for 6 years even when producing income. After 6 years, CGT applies for the next years till the sale of the property.
Why should I consult Kirpa Tax Accounting Firm?
CGT Investment Property Accountant Melbourne can save you thousands in tax and prevent costly mistakes. A wrong calculation can lead to a big tax bill and audit risk.