Capital gains tax are three words no property investor likes to hear, but unfortunately, as an investor, it’s something you do need to consider.

There is legislation you need to be aware of if you’ve lived in your property and then rented it out for an extended period.

Current legislation for Australian residents living in Australia

If you are living in Australia but not living in your property, you may still be exempt from CGT. The ATO website states:

Your ‘main residence’ (your home) is generally exempt from capital gains tax (CGT). To get the exemption, the property must have a dwelling on it and you must have lived in it. You’re not entitled to the exemption for a vacant block.

 As a general rule, a dwelling ceases being your main residence once you stop living in it. However, you can choose to continue treating a dwelling as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.

 Generally, you can treat the dwelling as your main residence for:       

• up to six years if it is used to produce income
• indefinitely if it is not used to produce income

However, if you are an Australian resident and planning on moving overseas for an extended period of time and want to sell your property while you are overseas, there are some changes to consider; these may determine whether you sell your main place of residence before you go, or rent it out.

30 June changes for residents living overseas

As we understand it, up until 30 June this year, those who are living overseas can claim an exemption on the tax payable on any capital gain from the sale of their main residence, provided they are within the six-year period and provided they owned the property before 9 May 2017.

But as of 30 June, the new legislation will kick in and the ATO website states:

New rules for foreign residents for tax purposes proposed in the 2017–18 Budget take effect from 9 May 2017. Foreign residents for tax purposes will no longer be able to claim the CGT main residence exemption when they sell property in Australia unless certain circumstances apply.

 Foreign residents for tax purposes who already held property on 9 May 2017 will be able to claim the CGT main residence exemption, if the CGT event (disposal) of the property occurs on or before 30 June 2020.

 For property acquired at or after 9 May 2017, you will no longer be able to claim the CGT main residence exemption from that date. That is unless certain life events occur within a continuous period of six years of you becoming a foreign resident for tax purposes.

Furthermore, as we understand it, this new tax bill will apply retrospectively, meaning it will cover the capital gain accumulated for the entire time the property is owned, not just on the accumulated capital gain for the period of time the home owner has been living overseas.

We are not experts in this area, and the above is for information only. We strongly recommend you visit the ATO website, www.ato.gov.au or speak to a qualified specialist for more detailed information about capital gains tax for investment properties and/or your residential home. They will be able to advise according to your personal circumstances.

If however you’d like to know what makes the perfect investment property and how our property management services can assist you, contact us on 02 4954 8833, send us an email to mail@apnewcastle.com.au or better still, come into our Cardiff office so we can talk more.