Capital Gains Tax Myths Debunked! | GQS Case Study

Q1: I am now living in an apartment that I bought in 2013, and was rented out until December, 2019. I purchased it for $300,000, and is now worth around $380,000. How long do I have to live in it for CGT to disappear? (Or does it ever?). Renovations could raise it to  approximately $500,000 if I live in it for 3 years then sell and move to another property.

Answer: You are entitled to a 50% discount on CGT once you own your investment property (IP) for longer than a year. When the property is your principal place of residence (PPR) you are not subject to CGT. Therefore in your case you will be subject to CGT @ 50% for the time it was your IP. Your new improvements should not be subject to CGT if you don’t rent out the property post improvements as it will be your PPR.

Q2: I have another property which I rent out and is only 2 and a half years old. If I move into this property whilst I do the improvements to the property mentioned above do I lose the depreciation I am claiming and am I subject to CGT?

Answer: You cannot claim depreciation whilst the property is your PPR. If you lived in it for say 3 months whilst you improved property #1, depreciation would be calculated pro-rata for that financial year. Say 9 months of the 12 months it is your IP therefore you will entitled to 75% of the depreciation entitlement you would have otherwise been entitled too for that year. The financial year following your depreciation entitlements will go back to normal. You will be subject to CGT pro-rata for the period it is producing income and not your PPR.

If you have any more questions about capital gains tax, contact a specialist at GQS!