Applied Financial Planning

Dwelling on selling? Top tips when selling the home

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When a client sells their main residence, you can add considerable value by helping them understand key tax, superannuation and social security issues and opportunities.

Capital gains tax (CGT) may be payable if your client sells a property that does not qualify for a full main residence exemption. By understanding the rules, you can not only help clients identify potential CGT implications but can also provide advice on how the sale proceeds could be used to top up retirement savings and to understand the impact on social security entitlements.

These are my top tips to build stronger relationships with your clients and help them nail down key opportunities when selling their home.

Understand the CGT foundations

The following sets out some fundamental CGT considerations:

Check for full main residence exemption

To qualify for a full main residence exemption, the property must have been:

• their home for the whole period of ownership

• not used to produce income, and

• on land up to two hectares.

Trusts and companies are not eligible for the main residence exemption (although an exception applies for a special disability trust).

A recent change to be aware of is the removal of the main residence exemption for non-residents. For disposals from 1 July 2020, the exemption is only available if your client has been a nonresident for six years or less and one of the following 'life events' occurs during that period:

• the client, spouse or child under age 18 had a terminal medical condition, or

• the spouse or child under age 18 died, or

• the client had a relationship breakdown.

Determine the main residence

Several factors determine if a property qualifies as the main residence and the importance of each factor varies depending on the case.

Key factors include:

• whether the client or their family live there

• how long they have lived there

• the intention to occupy the property

• the delivery of personal mail to the premises

• the location of personal belongings

• whether it is the address on the electoral roll, and

• whether utilities are connected.

The client's accountant should confirm whether the property qualifies as the main residence. If eligible, the exemption applies from the time the property is acquired, provided the client moves in 'as soon as practicable' after acquisition. Delays in moving in due to an illness or other unforeseen circumstance may be allowed, provided the client moves in immediately after the cause of the delay ends. Not moving in 'as soon as practicable' because the property was rented out at the time of purchase is not an acceptable reason for delay. In this case, a partial CGT exemption applies.