According to the ATO, your home is considered your main residence if:

  • You and your family live in it.

  • Your personal belongings are in it.

  • It is the address your mail is delivered to.

  • It is your address on the electoral roll.

  • Services such as gas and power are connected.

In Australia, most home owners live in the house they own, and they own that sole property.

However for property investors, tax time can become more complex when they own not only a home they live in, but a home as an investment, which may be rented out to other tenants.

According to statistics from the Australian Taxation Office, there are over 2 million property investors in Australia.

This means roughly 20% of home owners also own an investment property.

In this article we will outline how to qualify a property as a PPOR and what implications it can have for investors.

Why is your principal place of residence important at tax time?

If you are profiting off your property, by either renting it out, or selling it for a profit, you need to declare this with the ATO.

Selling a property at a profit is called a capital gain.

This is where PPOR becomes important, if the property you are selling is your PPOR, you are exempt from paying tax on this capital gain. This is called capital gains tax.

What is capital gains tax

A capital gain occurs when you sell an asset or investment, and the money from this sale is greater than what you paid for the asset, also accounting for expenses. Essentially, it’s the profit you make from an investment.

This capital gain has to be reported to the Australian Tax Office (ATO) and is taxed, just like any other income would be.

Although it has its own name and rules, your capital gains are reported with the rest of your taxable income, and CGT is part of your income tax.

According to the ATO:

Your home is exempt from CGT if you are an Australian resident and the dwelling:

  • has been the home of you, your partner and other dependants for the whole period you have owned it

  • has not been used to produce income – that is, you have not run a business from it, rented it out or 'flipped' it (bought it to renovate and sell at a profit)

Ultimately, this means if you are selling your PPOR, when you sell your home, you do not pay tax on any capital gain and you ignore any capital loss.

However, if you sell a property that is not your PPOR, and you make a profit, you need to declare this with the ATO.

Savings.com.au’s two cents

Owning a property does not automatically qualify it as your principal place of residence. Furthermore, it’s important not to try to get tricky with declaring where you are living.

It’s also recommended to chat to a professional come tax time if you are an investor with more than one property.

This is extra important if you have a separate dwelling in your property, such as a granny flat. How this is rented out, and perceived by the ATO can be a complicated affair come tax time.


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