Most people know that main residence = exemption from Capital Gains Tax.
But what happens if you start to rent out your home?
You have the 6 year rule that you could potentially use. This will be covered in a future post.
If you first rented your house after 20 August 1996 then the ATO allow you to take a market value of the property at the date you first rented the property. That’s your starting point for capital gains tax. You will only pay tax on the increase in value above that value.
Why would the ATO allow that?
It’s practical. When you first buy your home your intentions may have been for it to remain your home and always free from tax. In the meantime you have improved the property and you would not have kept receipts for those improvement costs because at the time it was not needed. The market value rule just side steps this issue.
Pro Tips
This method is only available where the property became your main residence when you first acquired it (if you rented it out then, you should have known to keep receipts for improvements).
There are small modifications where the property is partly used to produce income.
CGT only applies to properties purchased after 19 September 1985.
Author: Stacey Walker
Email: stacey@faj.com.au
