Q & A – CGT Main Residency Exemptions

In general, your main residence (your home) is exempt from Capital Gains Tax (CGT). There are some questions however which clients must consider when selling their single largest asset.

When is the disposal of a ‘dwelling’ exempt from CGT?

The disposal of a dwelling is exempt from CGT if you’re an individual and the dwelling was your main residence during your ‘ownership period’. When considering whether a dwelling is your main residence, the following factors may be relevant:

• The length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence;
• Whether you’re family lives there with you;
• Whether you have moved your personal belongings into the home;
• The address to which your mail is delivered;
• Your address on the electoral roll;
• The connection of services (for example, phone, gas or electricity).

What if the dwelling was my main residence for only part of the time?

If a CGT event happens to a dwelling you acquired on or after 20 September 1985, and that dwelling was not your main residence for the whole time you owned it, you receive only a partial exemption. This partial exemption is calculated by dividing the number of days in your ownership period when the dwelling was not your main residence by the total number of days the dwelling was owned.

For example:

Andrew bought a house on one hectare of land under a contract that was settled on 1 July 1990 and moved in immediately. On 1 July 1993, he moved out and began to rent out the house.  A contract for the sale of the house was signed on 1 July 2015 and settled on 31 August 2015 and Andrew made a capital gain of $100,000. As he is entitled to a partial exemption, Andrew’s taxable capital gain is as follows:

$100,000          x          8,098/9,194          =           $88,079

If you start using part or all of your main residence to produce income for the first time after 20 August 1996, a special rule affects the way you calculate your capital gain or capital loss. In this case, you are taken to have acquired the dwelling at its market value at the time you first used it to produce income.

For example:

Erin purchased a home in July 2000 for $280,000. The home was her main residence until she moved into a new home on 1 August 2003. On 2 August 2003, she commenced to rent out the old home. At that time, the market value of the old home was $450,000. On 14 April 2016, Erin sold the old home for $496,000. Erin is taken to have acquired the old home for $450,000 on 2 August 2003 and calculates her capital gain to be $46,000.

Can I move out of my main residence but return later and still call it my main residence?

For the purposes of capital gains tax and the main residence exemption it is important to note that when you choose to treat a dwelling as your main residence after you move out you cannot treat any other dwelling as your main residence for that same period of time.

If this dwelling is then used to produce income (for example, as an investment property) you can choose to treat it as your main residence for up to six years after you cease living in it.

You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence. This means that if you move back into the property before the first six-year period of absence has expired, then the six-year rule starts again.

The ATO does not specify a minimum length of time you are required to live in the dwelling to re-establish the property as your main residence in order to reset the six-year absence rule. Determining if a dwelling is your main residence is always going to be based on the individual circumstances and facts of each case

Do CGT exemptions apply to adjacent land?

A CGT exemption will apply for up to 2 hectares, including land under the dwelling. The adjacent land must be used primarily for private or domestic purposes in association with the dwelling. It must be noted that the land does not have to directly adjoin the dwelling but it must be disposed under the same CGT event as the dwelling. Any land that is beyond 2 hectares will not be exempt from CGT.

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