Ask Noel: Capital gains tax
Author: Noel Whittaker
Date: August 12, 2009
Publication:
Sydney Morning Herald
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Q: We bought a house 16 months ago and have been renting it back to the previous owners — we presently live in a unit. The previous owners will be ready to move out soon and we will move into our home. We then want to rent out our unit but I'm concerned we may have to pay capital gains tax (CGT). Is this correct? We are unsure how the tax will affect us to make the venture worthwhile.
A: There is no CGT payable until an asset is sold. I'm sure you know that your residence is CGT-free but you can't have two principal residences. If you eventually claim the house as your principal residence, you will be liable for CGT on any increase in value in the unit from the date you moved out to the date of sale. When you sell the house, there should be very little CGT to pay because it will be apportioned on a time basis. For example, if you owned it for 10 years and rented it out for two years, you'd pay CGT on two-tenths of any gain.
A: There is no CGT payable until an asset is sold. I'm sure you know that your residence is CGT-free but you can't have two principal residences. If you eventually claim the house as your principal residence, you will be liable for CGT on any increase in value in the unit from the date you moved out to the date of sale. When you sell the house, there should be very little CGT to pay because it will be apportioned on a time basis. For example, if you owned it for 10 years and rented it out for two years, you'd pay CGT on two-tenths of any gain.
