Flipping houses has become a hot topic in Australia thanks to shows like The Block but if you think it’s a quick route to tax free profits, you should think again. Unfortunately tax law in this country doesn’t allow you to ‘flip’ a property without paying tax even if you’re living in it. You may have heard the term flipping but what is house flipping and why is it a focus for the Australian Taxation Office?

What is House Flipping?

Flipping houses means buying a property, making improvements or renovations to increase its value and then selling it for a profit. The goal is to complete the process quickly to maximise returns while minimising holding costs like mortgage repayments, rates, and maintenance.

Successful house flipping requires careful planning, budgeting, and understanding of the property market. Investors need to factor in purchase costs, renovation expenses, selling costs, and potential tax implications to ensure the project is profitable.

Most people think that they can move in to a property, renovate it, and then sell it without paying tax. The main residence exemption – the exemption that protects your family home from tax – does not apply if your primary purpose is to ‘flip’ the property for a profit. The fact that you are living in the property does not mean it’s exempt from tax.

What is the Main Residence Exemption?

The main residence exemption is a tax rule from the Australian Taxation Office (ATO) that allows homeowners to avoid paying capital gains tax (CGT) when they sell their primary home. This exemption applies if the property has been your main residence for the entire time you’ve owned it and meets certain conditions.

Key Points:

✅ You must have lived in the property as your main home.
✅ The land size must be 2 hectares or less.
✅ The property must not have been used to produce income (e.g., renting it out or running a business).

If you only lived in the home for part of the ownership period or used it for income, you may be eligible for a partial exemption, meaning you might still have to pay some CGT.

This rule is important when it comes to flipping houses as the ATO is cracking down on those who repeatedly buy, renovate, and sell homes while claiming the main residence exemption. If the ATO considers property flipping to be a business activity, profits may be taxed as income rather than being eligible for the CGT exemption.

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 make the assumption that 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.

The ATO indicates that someone who is renovating a property with the intention of selling the property again at a profit could be taxed on revenue account in which case the main residence exemption does not apply.

The guide identifies three main scenarios and the general tax implications:

  • Personal property investor – this is someone who purchases a property with the primary intention of using it as a long-term rental property or private residence. If this person undertakes renovations and then sells the property earlier than originally planned, then they should still generally be able to argue that the sale is dealt with on capital account, which means that the main residence exemption and/or Capital Gains Tax (CGT) discount could apply.
  • Isolated profit making undertaking – this is someone who buys a property with the primary intention of carrying out renovations and then selling the property when the work is completed. Someone in this category is likely to be taxed on revenue account with no access to the main residence exemption or CGT discount.
  • Business of renovating properties – this is someone who is flipping houses on a regular or repetitive basis and where the activities are organised in a business-like manner. As with the category above, there is generally no access to the main residence exemption or CGT discount.

Just because you live in the property for all or part of the ownership period does not automatically mean that the profits from sale are exempt from tax. The main residence exemption can only reduce capital gains; it cannot reduce amounts that are taxed on revenue account.

MGI South Queensland have a team of specialist tax accountants who are able to offer tax advice on all matters relating to property. In addition if you are looking at wealth management strategies, we can help you to build your wealth portfolio and protect your assets. Contact us today to ensure you don’t attract the unwanted attention of the tax office.