An investor purchases a rental property for $800,000 and sells it 18 months later for $900,000. They are eligible for the CGT main residence exemption. What is their assessable capital gain?

Q: What is the correct answer to: An investor purchases a rental property for $800,000 and sells it 18 months later for $900,000. They are eligible for the CGT main residence exemption. What is their assessable capital gain?

The correct answer is $0. Option C ($0) is correct because the CGT main residence exemption provides complete exemption from capital gains tax when applicable. Under Division 118 of the Income Tax Assessment Act 1997 (Cth), if a property qualifies for the main residence exemption, the entire capital gain is exempt from CGT assessment. The exemption is binary - either the property qualifies and receives full exemption, or it doesn't qualify at all. There is no partial exemption or reduction based on the gain amount or holding period when the main residence exemption applies.

Q: What background knowledge is needed for this Finance Taxation question?

The CGT main residence exemption is found in Division 118 of the Income Tax Assessment Act 1997 (Cth). This exemption applies to a taxpayer's main residence, providing complete exemption from capital gains tax on the sale. Key requirements include that the property must be the taxpayer's main residence, though temporary rental periods may still qualify under certain conditions. The exemption covers the dwelling and up to 2 hectares of adjacent land. Unlike the 50% CGT discount for assets held over 12 months, the main residence exemption provides 100% exemption when applicable. Real estate professionals must understand this exemption as it significantly impacts property investment strategies and client advice.

Q: What is a good way to remember the answer to this Finance Taxation question?

HOME = Hundred percent Off Main residence Exemption. When a property qualifies for the main residence exemption, remember that it's not a discount or reduction - it's a complete 100% exemption from CGT. Think of 'HOME' as your safe haven where you pay zero CGT. When you see any CGT question mentioning 'main residence exemption' or 'eligible for main residence exemption', immediately think HOME = 100% off. Don't get distracted by calculating percentages or discounts - the exemption means zero assessable capital gain.

Q: What exam tip applies to this Finance Taxation question?

When a question states a taxpayer is 'eligible for the CGT main residence exemption', the assessable capital gain is always $0. Don't calculate discounts or partial exemptions - the main residence exemption provides complete CGT relief.

Q: How does this Finance Taxation concept apply in Australian real estate practice?

A couple owns a house they've lived in for 5 years as their main residence. Due to job relocation, they rent it out for 2 years before selling. Despite the rental period, they may still qualify for the main residence exemption under the 'temporary rental' provisions. If eligible, their entire capital gain would be exempt from CGT. As their real estate agent, you'd advise them to consult a tax professional to confirm eligibility, as this exemption could save them tens of thousands in tax on a substantial capital gain.

Question

Finance TaxationCGTMEDIUM

An investor purchases a rental property for $800,000 and sells it 18 months later for $900,000. They are eligible for the CGT main residence exemption. What is their assessable capital gain?

Answer Options

A

$100,000

B

$50,000

C

$0

D

$75,000