Economists Want Capital Gains Tax Abolished, Are you Exempt from it?

PARRAMATTA, Australia - April 9, 2017 - PRLog -- Economic Society of Australia (ESA) has conducted a new poll that says a lot of economists believe that the capital gains tax (CGT) deduction should be eliminated entirely. The government is looking for ways to make housing more affordable and one of the possible reforms include the current 50% CGT deduction on property investment. They agree that capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices. They pointed out that changes in one tax type will distort the economy so they suggest that the reform be holistic to fix inefficiencies. The federal government is considering to cut the current discount to 25%.

For the meantime, homeowners should know all about capital gains tax including the main residence exemption rule. Did you know that the sale of a taxpayer's home may be partly or entirely exempt from CGT if it is treated as their main residence or Principal Place of Residence (PPOR)? If the taxpayer lives in such dwelling, it can be treated as a main residence but no more than one can be treated as such at the same time. A property can be treated as a taxpayer's main residence if it is left vacant or the six-year rule is met. Under the six-year rule, a dwelling may be considered as a taxpayer's main residence if it is used to generate income such as rent for less than six years during the taxpayer's absence. Upon the sale of such property, CGT may apply to the income-producing period in excess of six years.

In other words, even if you rent out your dwelling, you may treat it as your main residence for up to six years after you stopped living in it. Your main residence is generally exempt from CGT but you cannot obtain the full residence exemption if you purchased the house on or after 20 September 1985 and used it as your PPOR, used a part of it to generate income during all or part of the period you owned it and if you are allowed a deduction for interest had you incurred it on borrowed money to buy the property (interest deductibity test).

For more information about capital gains tax and main residence exemption rule, contact your property tax specialist accountant (http://www.chan-naylor.com.au/contact-us/) to discuss your particular circumstances in relation to main residence exemption and capital gains treatment.