Navigating the Journey to Your First Home:

James Day, Manager within our Business & Personal Advisory division, recently presented at a Bendigo Bank first home buyer evening with tax tips for those purchasing their first home.  James spoke about some useful tips from an income tax perspective, which are summarised below.

Understanding Capital Gains Tax (CGT)

For many first-time homebuyers, their first home is also their first major Capital Gains Tax (CGT) asset that they will own. CGT is the income tax payable on the capital growth of assets when you sell or transfer them. Fortunately, your main residence is exempt from CGT, so selling your first home typically won’t be a taxable event. However, if you use your property to generate income (e.g., renting it out, operating a business etc.), this can affect your CGT exemption. It’s crucial to keep detailed records of when you live in the house versus when you rent it out and consider getting a market valuation when you first start using it to produce income.  

Tips for First Home Buyers from a CGT Perspective

1. Record Keeping: Maintain records of your living vs. renting periods to manage CGT implications effectively.
   
   
2. Market Valuation: Obtain a market valuation when you start renting out your property to potentially make use of a rule that renders the capital growth experienced while living there tax-free.
   
   
3. Main Residence Exemption: Consider living in the property for a period first before renting it out. This can enable the application of an absence rule, which can ignore periods of renting from a main residence exemption perspective. Note that this rule is complicated and advice from an accountant should be sought, given that you can only treat one property at any one time as your main residence., Therefore, if you own multiple properties, the application of the absence rule can have implications for other properties that you own.
   
   
4. Ownership Structure: Consider the ownership structure for the property. Trusts and Company structures cannot access the main residence exemption, therefore main residences are generally best owned in an Individual’s name.
   
   
5. Consult Your Accountant: Speak to your accountant before selling your property, especially if you own more than one, to discuss the potential tax implications.

We’re Here to Support

At WLF, we are committed to assisting you throughout your home-buying journey. Our team of specialists is available to offer personalised guidance and help you maximise the tax benefits and strategies available to you. Whether you’re purchasing your first home or planning your financial future, we’re here to support you along the way. Contact us today