Many taxpayers end up paying tax on the sale of their primary residence simply because they are not fully aware of the six-year exemption rule. Understanding how this exemption works, and the eligibility criteria involved is crucial for minimising your tax liability.
For foreign residents and Australian citizens who are classified as foreign residents for tax purposes, the main residence exemption from Capital Gains Tax (CGT) does not apply. This means you will be liable to pay tax on the capital gain or profit from the sale of the property if you sell it while classified as a foreign resident. The only exception is if you meet the criteria outlined in the life events test, which is specific and has limited applicability.
However, this restriction does not apply to Australian residents for tax purposes. If you are classified as an Australian resident at the time of the sale, you are entitled to the main residence exemption, like all other Australian resident taxpayers. This includes the six-year exemption rule. It allows you to treat the property as your main residence for CGT purposes for up to six years, even if it has been rented out during that period. However, this applies only if you do not nominate another property as your main residence during that time.
Proper understanding of these rules can significantly reduce your tax obligations, making it essential to seek professional advice tailored to your situation. If you’re unsure about your eligibility or how these rules apply to your situation, contact Investax Property Tax Specialists for expert advice.
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