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In most cases, there are no tax implications for the home that you live in and no tax implications when you sell it. However if you have an investment property, build or renovate for profit, or use a property in the running of a business, the situation may change

The following section will look at different scenarios in which requests for the payment of income tax, capital gains tax (CGT) and goods and services tax (GST) may arise.

Your home

Your home is generally exempt from tax, however this situation may change if you rent out part of your home or use it for work, or it’s on more than two hectares of land.

Renting out part or all of your home

If you rent out part or all of your home, the rent money you receive is generally regarded as an assessable income. This means:

  • You must declare your rental income in your annual income tax return, and you are entitled to claim income tax reductions for a portion of the associated costs such as part of the interest on your home loan.
  • You may not be entitled to the full main residence exemption from capital gains tax. You will have to pay capital gains tax on part of any capital gain made when you sell your home.

Goods and services tax (GST) does not apply to residential rental, so you are not liable for GST on the rent your charge and cannot claim GST credits for associated costs.

Payments from a family member for board or lodging are considered to be domestic arrangements and are not assessable income. In these situation you also cannot claim income tax deductions.

Building or renovating your home

Generally, there are no direct tax implications (income tax or capital gains tax) if you build or renovate your own home for private purposes).
If the dwellings is your main residence and you use the improvements (renovations) as part of your home, they are exempt.

This includes improvements on land adjacent to the dwelling if the total land, including the land on which the home stands, is two hectares or less.

Similarly you are not liable for GST if you are constructing or selling your family home. This is because you are not considered to be carrying on an enterprise if your property transactions are for private purposes.

Vacant land

The tax treatment of vacant land depends on whether it is a capital asset or trading stock.

If you have acquired vacant land (either for private purposes or as an investment), it is usually considered a capital asset. When you sell the land, you will need to work out your capital gain or your capital loss. If it is a capital gain, then you are liable to pay tax.

However if you use your land in a business activity that deals in land, it is considered trading stock. Any sale proceeds are then treated as ordinary income, and you may be required to register for GST. This could happen even for a one-off transaction.

Property development, building and renovating

Renovating for profits

You are likely to be entering into a profit-making activity if you acquire a property with the intention of renovating and selling it at a profit, and go about it in a business-like way. This could have implications for the way the profit is treated for tax purposes (income or capital) and for GST.

Building and constructions- Residential premises

If you build new residential premises for sale:

  • You can claim GST credits for the construction and any purchases you make related to the sale of the premises.
  • You are liable for GST on the sale.

Please note that GST does not apply to the sale of residential premises that have been sold before.

Property used in running a business

If you use your property to run a business – whether commercial premises like a shop or office, or even your home – it will generally have the following tax implications.

  • You must include any rental income in your tax return
  • You can claim income tax reductions for some property expenses
  • You will be liable for capital gain tax on any capital gain when you sell.

Buying commercial premises

When you buy a commercial property – such as a shop, factory or office – you may be eligible to claim a credit for the GST included in the purchase price. While you own the property, you can generally claim income tax deductions for ownership and maintenance expenses, such as loan interest and also credit for GST included in maintenance and running costs.

Selling commercial premises

You are generally liable for capital gains tax when you sell a commercial property. You may be eligible for discounts or concessions that reduce the amount you have to pay.

Usually, you will also be liable for GST on the sale and can claim GST credits for related purchases.

Leasing and renting commercial premises

If you lease premises to others, you include your rental-related income in your annual tax return, and can claim tax deductions for many of the related expenses. You may be liable for GST on the rent you charge and be entitled to claim GST credits for related purchases.

If you rent a commercial property for your business premises, the rent you pay is tax deductible. You may be liable to claim GST credits for the GST included in the rent your pay.

Running your business from home

If your home is your principal place of business, you can claim income tax deductions for a portion of the costs of owning, maintaining and using your home for this purpose. When you sell your home, you will be liable for capital gain tax for a portion of any capital gain.

For more information on property related taxation, please do not hesitate to contact GMH Legal. Our experienced team of Property Solicitors will advise you on this complex area of law.

Call the experienced team at GMH Legal to assist you in your matter. A free consultation with GMH Legal is an opportunity to gain deep insights into your legal situation and all of your options.

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  • Outstanding track record with a winning approach
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