Chapter 6 – Real estate and main residence
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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This chapter explains your capital gains tax (CGT) obligations in relation to real estate. Real estate includes vacant blocks of land, business premises, rental properties, holiday houses and hobby farms. The CGT exemption for a main residence is also explained in this chapter.
Apart from the main residence rules, capital gains and capital losses on real estate are worked out under the rules set out earlier in this publication.
Land is a CGT asset. In some cases improvements made to land are treated as separate CGT assets – see Separate assets. A depreciating asset that is part of a building (for example, carpet or a hot water system) is also taken to be a separate CGT asset from the building. When a CGT event happens to your property you are required to work out a capital gain or capital loss in respect of each CGT asset it comprises (or balancing adjustment in the case of depreciating assets sold with the property).
The most common CGT event that happens to real estate is its sale or disposal – CGT event A1. The time of the event is:
- when you enter into the contract for the disposal
- if there is no contract - when the change of ownership occurs, or
- if the asset is compulsorily acquired by an entity – the earliest of
- when you received compensation from the entity
- when the entity became the asset's owner
- when the entity entered it under a power of compulsory acquisition, or
- when the entity took possession under that power.
Where land is disposed of under a contract the disposal is deemed to have taken place when the contract is made. However, you are not required to include any capital gain or capital loss on your income tax return for the relevant year until an actual change of ownership occurs. When settlement occurs, you are required to include any capital gain or capital loss in the year of income in which the contract was made. If an assessment has already been made for that year of income, you may need to have that assessment amended.
There may be terms in this chapter that are not familiar to you. Refer to chapter 1 in part A for more information or to Explanation of terms.
Last modified: 04 Mar 2016QC 27527