ATO Capital Gains Tax Knowledge Base

Australian Taxation Office (ATO) Capital gains tax computation is quite complex and requires understanding of different rules and principles. Some of the most relevant rules are explained below.

ATO Capital Gains Tax Property Exemption Tool

As per recent changes, foreign and temporary residents cannot claim “main residence” exemptions, other than on fulfillment of certain preconditions.

Capital gains tax However those foreign and temporary tax residents who owned a residential property as on 9 May 2017 can claim such exemption on or before 30 June 2020.

For the purpose of availing the exemptions you would need the following.

• Details regarding the date the property was acquired and sold, or is likely to be sold.

• Other information, for example the period the property was leased.

The extent of “main residence” exemptions can be computed using the capital gain property exemption tool.

Destruction or Compulsory Acquisition Of Dwelling Property

If the residential property is accidentally destroyed due to any event, than the “main residence” exemption can be availed.

This is possible only in the circumstance where the property would have been used as a dwelling property if it had not been accidentally destroyed.

Exemption for “main residence” can also be availed if the dwelling property is compulsorily acquired due to any reason.

An example of compulsory acquisition might be the acquisition of property by any Australian government body or entities authorized in this behalf for general public purposes.

Maximum Exempt Area

The maximum area of land which is exempt under “main residence” rule is two hectares.

If any area of property is exempted as a result of compulsory acquisition than that part of the main residence is to be reduced by such amount.

Dwelling And Associated Structures

Dwelling refers to anything related to residential accommodation, whether wholly or partially.

Some examples of dwelling might include apartment, cottage, flat, house, strata title unit, retirement village unit, caravans or mobile homes.

The rules for “main residence” exemption applies on aforementioned as long as they are used for domestic or private purpose for the period you own it.

Land Adjacent To Dwelling

Land is deemed as adjacent to dwelling for tax purposes if it is in close proximity to main dwelling property. The “main residence” exemption applies to dwelling properties along with the original dwelling if all of the following applies.

• The adjacent property is used in connection with original dwelling and solely for private or domestic purposes.

• The cumulative area of original dwelling and adjacent land is equal to or less than 4.94 acres (2 hectares).

Ownership Interest And Ownership Period

For the purpose of application of “main residence” exemption, it is essential to determine the period when the ownership interest in the property was acquired.

The date of obtaining ownership interest in the property is usually the date of settlement on purchase of property.

For the purpose of considering the purchased property as dwelling property it is essential that the owner moves into the house as soon as it is practicable to do so, ignoring the period between procuring and settling the ownership interest in the property.

Maintenance Of Records For Real Estate

It is essential that the following record is kept in relation to real estate you own with the objective of claiming “main residence” exemption.

• Copy of contract for purchase along with evidence of all ancillary expenses such as legal cost and stamp duty.

  Copy of contract for sale along with evidence of all ancillary expenses such as legal cost and stamp duty.

• Records pertaining to the ownership of property including evidence of revenue expenditure such as insurance, levies and taxes. Such expenses would only be allowed if the taxpayer was not able to or have not claimed such expenses, and they were incurred in connection with the property acquired after 20 August 1991.

• Records pertaining to the ownership of property including evidence of capital expenditure such as initial repairs, additional improvements or extensions.

An exemption for “main residence” can also be availed by the person who has inherited the property that was used as main residence by the person who has left it.

For this purpose it is essential that the person who has inherited the property keeps the following record. 

• Evidence of all expenses incurred by him in relation to the property after inheritance.

• Record of costs incurred by previous owner. However such requirement might be relaxed if the dwelling property was inherited after 20 August 1996, the dwelling was used as a main residence by the demised and the dwelling was not used for commercial purposes by the demised at the time of his/her death.

Practical Compliance Guideline PCG 2019/D5

Kindly refer PCG 2019/D5

Insurance

Personal use assets and collectibles can be purchased by the fund but it is essential that such assets are insured within seven days of the purchase, in fund’s name.

Prior to making such investment it is vital that certain pertinent cost such as the availability and cost of insurance is taken into account.

However if such considerations are not taken into account inadvertently and insurance options are not available, than the fund can approach the SMSF auditor or Australian Taxation Office to rectify the situation.

Taxation Ruling TR 2010/1

Kindly refer TR 2010/1

ATO Capital Gains Tax Investment Companies Concession

An Australian resident taxpayer receiving dividend from listed investment company including LIC capital gain amount shall be entitled to income tax deduction.

In this regard the taxpayers including individuals, partnerships or trust can deduct 50% of attributable part as advised by listed investment company.

However the same percentage for a complying superannuation company or life insurance company is 33.33%.

Rights And Options To Acquire Shares

Companies may provide its employees or other stakeholder rights or options to acquire shares at a pre-determined price.

The grant of such right or option does not lead to a capital gain tax event.

However if in absence of any precondition for holding period, the option or shares acquired by means of the exercise of option are disposed of than the capital gain tax event has occurred.

Bonus Shares

Bonus shares are usually provided by companies to their existing shareholders.

The treatment of bonus shares for tax purposes depends mainly on whether such shares are assessable as dividend or not.

Further the rules for determining the tax implication of such shares is quite complicated which takes into account the period in which such shares were issued. For further reading kindly refer bonus shares.

Personal Investors’ Guide To CGT 2019

Kindly refer PIG CGT 2019

For further reading: What is capitals gain tax?