Navigating Capital Gains Tax When Selling Mixed-Use Properties

Selling a property that has been used for both rental and residential purposes involve several capital gains tax (CGT) considerations. Here are some key points to keep in mind:

Choosing CGT Exemptions

If you keep your original home and rent it out after buying a new one, you need to decide whether to retain the full CGT exemption on your original home or apply it to the new one. There are strategies that might allow you to benefit from both.

Rental Before Residence

If you rent a property first and then move in, you might miss out on some concessions that could reduce your CGT liability.

Inheritance and Mixed Use

Specific CGT rules apply to properties with mixed use when the owner passes away and beneficiaries sell the property later. These rules can be complex, but with good planning, they can lead to positive outcomes.

Calculating Partial Gains

When calculating any partial capital gain or loss for properties used for both rental and residential purposes, you need to consider whether a market value cost can be used and account for non-deductible mortgage interest and other costs.

Deductions and Write-Offs

Keep track of any deductions claimed, like building write-off deductions, and whether those amounts need to be adjusted when selling the property.

50% CGT Discount

Determine if any partial capital gain can qualify for the generous 50% CGT discount, which is a significant tax concession.

Planning for Mixed Use

If you live in the property first, you might be able to keep its full CGT exemption for up to six years. If you rent it out for more than six years and later calculate a partial CGT exemption, you could benefit from a market value cost from when you first rented it.

In summary, selling a property with mixed rental and residential use involves several CGT considerations, including how to make the most of different concessions to lower your potential tax liabilities. If you’re in this situation or thinking about buying a property for mixed use, it’s wise to seek professional advice to navigate these complexities effectively.

Tommy Li, CA

Director, Verity Advisory  |  Registered Tax Agent  |  Authorised Financial Adviser (ASIC Rep No. 1261831)  |  Member, Chartered Accountants Australia & New Zealand

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Tommy is a Chartered Accountant with 20+ years advising medical professionals on tax, financial structure and practice ownership decisions. He founded Verity Advisory to provide integrated advice for doctors at career-defining financial inflection points — combining tax, lending and financial planning into a single structured approach.