20/12/2010
Question: We bought an apartment in Darwin in June 2005 for $250,000 (purchase price) and moved out of the property in February 2008. We now want to sell the property to buy another house in Perth. A property appraisal for $400,000 was conducted around December 2007. The property has again been rented out in February 2008 until now. Are we liable for capital gains tax? What would the capital gains tax be?
My current income is $56,000 and my wife’s income is $30,000. Also, I am about to take up another position with a salary of $85,000; will this affect the capital gains tax?
Answer: Capital gains tax (CGT) is a very extensive subject and many facts required to draft a reply are missing from your question. Any capital gain made on disposal of a taxpayer’s main residence is exempt from capital gains tax. It needs to be determined if the Darwin apartment can be classified as your main residence for the whole period from acquisition to disposal. As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for capital gains tax purposes even though you no longer live in it. You may choose to rent out your main residence for a period of up to six years without affecting your main residency status under the ‘continuing main residence status after dwelling ceases to be your main residence’ rule.
Within the limits of available information two scenarios are stated below based on the following presumptions:
- you moved and resided in the Darwin apartment straight after buying it in June 2005
- you did not elect any other property as your main residence during your stay (June 2005 to Feb 2008) in the Darwin apartment
- the property wasn’t a place of business during your stay, and
- the property wasn’t partially rented out during your stay
Scenario one
If after moving out in February 2008 you are renting somewhere and do not have any of your other properties nominated as your main residence, then you may avail the CGT main residence exemption for the Darwin apartment for the whole period as stated above.
Scenario two
If you moved out from the Darwin apartment in February 2008 into your own house which is more expensive than the Darwin apartment and this new house is your main residence since February 2008, then you will be liable for capital gains tax on the taxable proportion.
You need to add your net capital gain to your taxable income, so the tax you pay on it depends on what tax bracket you are in. There is a 50% capital gains tax discount for individuals who hold a CGT asset for one year before selling. This means that you only have to include half of your actual/ gross capital gain in your taxable income.
