Main residence capital gains tax (CGT) exemptions can be complex. Your primary residence is your home and, for most people, it holds a special place in their heart. When the time comes to sell your main residence, paying tax is often the last thing on your mind. However, it’s important to understand the scenarios in which the ATO will treat your main residence as exempt from CGT.
Our resident expert, Conor, starts with a common scenario: properties where a granny flat has been built.
Capital Gains Tax Exemptions for Granny Flats
With the significant rise in Sunshine Coast property prices, as well as the increased cost of living, building granny flats has become more common. Perhaps you haven’t built one yet but are considering your options at your primary residence. Approach this with caution and seek expert advice to understand your long-term tax obligations. Below, we break down the scenarios where a CGT exemption for granny flats may apply.
CGT exemption for granny flat arrangements
From 1 July 2021, CGT does not apply when a granny flat arrangement is created, varied or terminated. A granny flat arrangement is a written agreement that gives an individual the right to occupy a property for life.
When does the CGT exemption apply to a granny flat arrangement?
A granny flat arrangement is exempt from CGT if it meets the following criteria:
- the owner or owners of the property are individuals
- one or more individuals have an eligible ownership interest in the property on which the granny flat stands
- these owners and the individuals with the ownership interest enter into a written and binding granny flat arrangement
What rules apply to the granny flat arrangement for capital gains tax exemption?
To be exempt from CGT, a granny flat arrangement must:
- be in writing
- indicate an intention that the parties are legally bound
- not be commercial in nature
A common scenario where a granny flat interest is considered a commercial arrangement is where rent is required to be paid at a market-related rate. However, if the individual living in the granny flat is contributing to electricity, water, or similar actual household costs, this is unlikely to be considered commercial in nature.
How can we help you with main residence tax exemptions?
At ABA Advice Beyond Accounting in Birtinya, we continuously attend training to ensure we stay up to date with the latest tax regulations. This includes a comprehensive understanding of main residence capital gains tax exemptions, and the complexity that can come with them.
We encourage you to reach out to us before you build or rent a granny flat, and before you sell your home, so we can help you achieve the best possible tax outcome. Already building your granny flat or renting it out? No problem — we can still help. Our expert Sunshine Coast tax accountants can advise you on both the short- and long-term tax implications of your current situation. Contact us now for a free discovery meeting.