Sign up to newsletter

As Darryl Kerrigan once said in the classic Australian movie, for many people “our home is our castle.” In Australia, that really is the case – at least when it comes to tax we pay when we sell our home.

You see, our own monarch, Queen Elizabeth the Second, is not obliged to pay capital gains tax. In most cases, when Australians sell the home they live in, we do not have to pay tax on the sale proceeds, either. When it comes to paying tax, our family homes have something quite important in common with Buckingham Palace.

This all comes about because Australia’s tax laws allow our ‘main residence’ to be exempt from capital gains tax when we sell it. Being a tax law, please get professional advice before you sell your own property (there are exceptions on exceptions when it comes to tax), but for the most part, this law means that sale proceeds from selling the family home are not taxed.

The main rules that apply to this ‘CGT exemption’ are quite logical. Most importantly, the property you sell must be your main residence. Usually, this means what it says – your main residence is the one in which you mainly live. And you can only have one main residence for any point in time. This would catch the Queen out, for example, if she decided to sell more than one of the six residences across which she spends her time. Only one of these would be exempt from CGT were the Queen subject to Australian tax law. And if she claimed the CGT exemption on one of them, it would be unavailable for any of the others.

That said, for us commoners, even the requirement that a property be your main residence is open to interpretation: you can often continue to treat a property as your main residence even if you no longer live in it (although, here, we really recommend you get expert advice!)

The fact that CGT does not apply to the family home is especially helpful for Australians, because a significant portion of household wealth is usually tied up in people’s family homes. In 2017/18, the Australian Bureau of Statistics reported that family homes accounted for 42% of the total wealth of the ‘average’ Australian household. The breakdown of assets looked like this (source: ABS):

The link between the tax treatment of homes and their pre-eminence in the wealth composition of so many Australians is not a coincidence. The CGT-free nature of family homes encourages home ownership. In turn, the huge role that homes play in our wealth profile discourages politicians from applying any form of tax to them. Indeed, even means tested payments like Centrelink pensions tend not to include the main residence in the calculation of people’s entitlements.

As a result, we can look forward to family homes retaining their pre-eminent position in the wealth profile of most Australians – which is one reason why we emphasise this form of asset in our newsletters. It is also one reason why the family home is usually a main topic of conversation for anyone seeking our help with their financial planning.

We need to make one final point, though. In case you are enjoying feeling like a king or a queen, you should probably also be aware that, since 1993, Queen Elizabeth and her son Prince Charles have been voluntarily paying tax on their income and capital gains. We really do not recommend this. Sometimes, it is good to be a commoner.