The tax law does not allow you to ‘flip’ a property tax-free even if you are living in it.
Most people think they can move into a property, renovate it, and then sell it without paying tax. The main residence exemption – the exemption protecting your family home from tax – does not apply if your primary purpose is to ‘flip’ the property for a profit. The fact you are living in the property does not mean it’s exempt from tax.
Some people reading this are probably thinking, but who is going to know? How can the Australian Taxation Office (ATO) really know what my intention is when I buy a property to live in? Generally, the ATO is looking for a pattern of behaviour or a declaration of intention.
For example:
- You are not employed and earn your income moving in, renovating then selling
- You have a pattern of renovating and selling properties
- Your loan documents on your mortgage suggest the property is for flipping and not for the long term
- You go on national television stating that you are looking to move in, renovate and flip the property (hello The Block contestants).
The ATO’s guide on property is clear: “If you’re carrying out a profit-making activity of property renovations also known as ‘property flipping’, you report in your income tax return your net profit or loss from the renovation (proceeds from the sale of the property less the purchase and other costs associated with buying, holding, renovating and selling it).”
People often assume any gain made from property flipping will be exempt from tax as long as the property is their main residence for the entire ownership period. However, this is only the case where the property is held on capital account. A property would generally be held on capital account if it is bought with the genuine intention of using it as a private residence or rental property for the foreseeable future and there is evidence to back this up.
Concerned about the tax implications for your investment property? Speak to your accountant or we would be happy to recommend you a property savvy accountant.. just give us a call on 1300 855 244