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Understanding capital gains tax exemptions

It is often assumed that simply living in a house or home unit, even if for only a short time, gives you the right to claim it as your principal residence and so get an exemption from capital gains tax.

There is, however, a range of other conditions that usually have to be satisfied.

This was highlighted recently by a decision by the Administrative Appeals Tribunal (ATT).

As reported by Thomson Reuters Weekly Tax Bulletin, the tribunal rejected an application for CGT exemption despite the fact the taxpayer claimed to have occupied the dwelling with his estranged de facto for three months.

While there is no legislated time period, three months is the unofficial “rule of thumb” minimum for CGT exemption.

Not only did the AAT question whether the occupancy requirement had been met, it said there was no evidence of any gas or electricity accounts for the house in the taxpayer’s name, his mail was being directed to his sister’s Queensland address, he obtained a Queensland driver’s licence using her address and also used it for his income tax return.

In general, a dwelling you are no longer living in is unlikely to qualify for CGT exemption unless you and your family lived in it, your personal belongings were in it, it was the address your mail was delivered to, it was your address on the electoral roll, and services were connected (for example, telephone, gas or electricity).

As already noted, the length of time you stayed there will also be relevant.

Written by Peter Freeman

Peter Freeman is a former managing editor of The Australian Financial Review. He runs his own self-managed super fund.

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