For many Australians, selling property can bring with it questions about tax obligations, particularly when it comes to capital gains tax (CGT). The main residence exemption is one of the most valuable concessions available, but it’s also one of the most commonly misunderstood. As tax professionals, it’s important to guide clients through the rules to ensure they report sales correctly and don’t make mistakes that could trigger compliance issues down the track.
This article walks through the key considerations to help you get the main residence exemption right.
Start by Discussing Property Moves
A simple first step is to ask clients whether they bought or sold any property during the financial year. This might sound obvious, but it ensures you’re not overlooking a transaction that could have CGT consequences.
If they have purchased property, explore how it has been used. Was it lived in as their home, rented out, used for business purposes or left as vacant land? Each of these scenarios can change whether the main residence exemption applies. For example, if the property was rented out or partly used for business, only a partial exemption may be available. On the other hand, if it was simply vacant land even if intended for a future home the exemption cannot be applied at all.
Keep Records Up to Date
Accurate records are the backbone of correct tax reporting. Encourage clients to keep detailed documentation from the very beginning, including:
- Purchase and sale contracts
- Settlement statements
- Loan documents
- Rental income and expenses
- Periods when the property was vacant or producing income
- Independent valuations, where relevant
Having these details on hand avoids last-minute scrambling and makes it easier to calculate whether a capital gain or loss has occurred. It also supports any claims for the exemption or partial exemption, particularly in complex cases where property use has changed over time.
Use Pre-Fill Property Transfer Data
The ATO’s Online Services for Agents includes valuable property transfer data that can help confirm details provided by clients. In the “Property transfer” section, you can access:
- The property address
- Contract date
- Settlement date
- Sale price
Cross checking this pre-fill information with your client’s records ensures accuracy and prevents simple mistakes. It can also act as a prompt to discuss situations your client may have forgotten to mention, such as inherited property or a property sold by a family trust or SMSF.
Be Clear About Vacant Land
One of the most common misunderstandings relates to vacant land. The main residence exemption does not apply to land without a dwelling, even if your client intends to build a home on it or had previously lived on the site before demolishing the house.
This means if a client sells a block of land, the gain or loss must be reported in their return, and the exemption cannot be claimed. Clarifying this early helps avoid disputes later.
Bring It All Together
When reviewing a client’s situation, bring these points together:
- Have they bought or sold any property in the year?
- What was the property used for main residence, rental, business, or vacant?
- Do their records clearly show periods of use?
- Does the pre-fill property transfer data line up with their documents?
- Are they aware of how the exemption applies to their circumstances?
By walking through these steps, you can ensure clients understand their obligations and avoid costly errors.
Conclusion
The main residence exemption is a powerful tax relief, but it isn’t automatic and doesn’t apply in every case. Vacant land, income-producing properties or homes partly used for business can all limit eligibility. With careful questioning, accurate record-keeping and effective use of ATO tools, you can guide clients through the rules with confidence.
Helping clients get this right not only protects them from unexpected tax liabilities but also builds trust in your professional advice. As always, keeping things clear and documented is the best way forward.
Reference: ATO
