Capital Gains Tax On Rental Property


We have recently had an interesting Capital Gains Tax question posed by one of our clients…

My ex and I have decided to sell our property. Are you able to tell me if we would pay Capital Gains Tax or any other tax as we are not currently living in the property, but we did for 18 months?

I am still considering buying the property off him and I am currently completing the documents for the mortgage broker, but with the way the market is, it seems a good time to sell and invest again or buy a smaller property for myself.

According to your income tax return, the rental property first earned rental income on 22/01/12.

It’s understood that you and your ex boyfriend lived in this property during the 18 months prior to this date.

Based on the above information, no capital gain tax will apply. Any profit that you will make on the sale of your 50% interest will be exempt from Capital Gain Tax and effectively tax free.

This is due to your eligibility to make an election to treat this property as your main residence from the date that you have purchased it to the date of sale. You can continue to treat your 50% interest in the unit as your main residence while it is rented out for up to six years after you have moved out.

No capital gain tax applies to the property that is the main residence of the taxpayer.

If, for a period, you have two homes that could be regarded as your main residence you must choose one of the homes for this exemption and CGT will apply to the other property. (You don’t have to make the choice until you sell one of the homes.)

If you make this choice, you cannot treat any other property as your main residence for that period. The choice is made in the income tax return.

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