01 Apr 2016

Main Residence Exemption Part 1 – Large Properties

When selling your home, capital gains tax does not generally apply; this is commonly referred to as the main residence exemption. This exemption extends to the land surrounding the dwelling to a maximum of two hectares, so long as the land is not used for income producing purposes. But what happens if you live on more than two hectares? Let’s look at Maria’s situation:

Maria lives just out of Woodend on 20 hectares which is used entirely for private purposes. She decides to downsize and makes a net gain on the sale of the property. Maria can get the main residence exemption for the house and any two hectares of land she selects out of the 20 hectares.

Maria obtains a valuation which states that the dwelling and two hectares of land that she has selected were worth two-thirds of the total value of the property at the time she bought it, and this has not changed since purchase. Therefore she can claim the main residence exemption on two-thirds of the capital gain from the sale of her home.

Maria will be liable to pay capital gains tax on the remaining one third of the net gain at her marginal tax rate. If she held the property for over twelve months she is able to access the 50% discount to reduce the mount she has to pay tax on.

Should you wish to discuss further please feel free to contact Andrew Marshall or Janine Orpwood on 5427 8100 for an initial consultation.