The truth about taxes and selling your family home

“With the twists and turns of the main residence exemption and its tax implications, you really need to get your head around the rules and how they apply to your situation.”

There's a few people around that believe that selling your home is a tax-free affair, but is it really? I'm here today to deep dive into this subject, and hopefully help untangle the tricky web of the main residence exemption – a rule that usually shields your home from capital gains tax (CGT). We're going to check out the factors and switches that can mess with this exemption, throwing light on the complexities of CGT and the sale of your primary dwelling.

CGT and the main residence exemption explained

Let's break it down. CGT can normally come into play with profits from selling capital assets, unless specific carve-outs or reductions apply, or you have a capital loss to set against the tax. An asset's gain is typically taxed at your marginal tax rate, but there might be some exemptions or reductions around.

The real star of this show is the main residence exemption. This rule relates to the humble abode you're living in. As a rule of thumb, CGT sticks to the sale of your home unless certain boxes are ticked. If you're an Aussie resident for tax purposes, you can take full advantage of the main residence exemption when you sell your home, given that you've lived there throughout the ownership period, the area doesn't exceed 2 hectares and you didn't use the property to rake in income, like running a business or renting it out.

Navigating the complexities of the main residence exemption

Figuring out your main residence for CGT purposes typically kicks off from the moment you move in and start living there. Certain factors, like owning two homes during a transition period, can muck around with eligibility for the main residence exemption. Other aspects such as the length of residence, your family's chief abode, utility connections, and 'intent' play a big part in setting up the main residence for tax purposes.

Recent changes in main residence rules and tax residency

Recently, there've been some shifts in main residence rules which leave non-residents in the cold, barring them from accessing the main residence exemption. The lens here is on your tax residency status when the CGT event happens, and these residency tests can be a bit tricky. It's crucial to get some expert advice to steer through the residency rules and their tax consequences. That's where my team at Trekk Advisory can help you get the right advice, at the right time, to ensure you are covered when considering all the rules and conditions.

Main residence absence rule explained

Under certain conditions, you can still consider your home as your main residence even if you're not kicking around there. The absence rule lets you treat your home as your main residence for tax reasons for a particular period, taking into account various factors such as using the property to make money.

Considerations for main residence exemptions and CGT rules

There's more than that to consider. If you've been making money from your home while living there, part of the main residence exemption might be knocked off. Plus, there are specific rules when partners each own homes that have been established as their main residences for the same period, ensuring a fair split of the CGT exemption.

Inherited properties also have their own tax baggage, especially concerning the application of the main residence exemption. Special rules allow beneficiaries or estates to get the full or partial main residence exemption on inherited property, subject to meeting certain conditions and deadlines.

The importance of professional guidance

With the twists and turns of the main residence exemption and its tax implications, you really need to get your head around the rules and how they apply to your situation. It's a great idea to seek professional advice to assess the specific tax implications tied to the sale of a family home. The right guidance can make sure you're following the tax rules and making the most of the available exemptions and concessions... But also make sure you're walking away with the most out of the sale.