Under the main residence exemption your family home is exempt from capital gains tax (CGT) when you dispose of it. But, like all things involving tax, is it ever that simple?
A home is generally considered to be your main residence if:
- It is where you and your family live
- Your personal belongings have been moved into the dwelling
- It is where your mail is delivered
- It is your address on the electoral roll
- You have connected services such as telephone, gas and electricity (in your name)
- It is your intention for the home to be your main residence.
The length of time you have lived in the home is important, but there are no hard and fast rules. Your intention takes precedence over time spent as every situation is different.
When does the main residence exemption apply?
In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you can offset the tax against a capital loss.
If you are an Australian resident for tax purposes, you can access the full main residence exemption when you sell your home if:
- Your home was your main residence for the whole time you owned it; and
- You did not use your home to produce any income, and
- The land your home is on is two hectares or less.
Note – if your home is on more than two hectares, for example on farmland, the exemption can apply to the home and up to two hectares of adjacent land.
Note – if you have used your home to produce income, you won’t normally be able to claim the full main residence exemption, but you might be able to claim a partial exemption.
Note – foreign residents cannot access the main residence exemption even if they were a resident for part of the time they owned the property.
Can the main residence exemption apply if you move out?
You might have heard about the ‘absence rule’. This rule allows you to continue to treat your home as your main residence for tax purposes:
- for up to six years if the home is used to produce income, for example, you rent it out while you are away; or
- indefinitely if it is not used to produce income.
Note – when you apply the absence rule to your home, this normally prevents you from applying the main residence exemption to any other property you own over the same period.
Can a couple have a main residence each?
Let’s say you and your spouse each own homes that you have separately established as your main residences.
The rules don’t allow you to claim the full CGT exemption on both homes. Instead, you can:
- Choose one of the dwellings as the main residence for both of you during the period; or
- Nominate different dwellings as your main residence for the period.
What happens in a divorce?
Assuming the home is transferred to one of the spouses (and not to or from a trust or company), both individuals used the home solely as their main residence over their ownership period, and the other eligibility conditions are met, then a full main residence exemption should be available when the property is eventually sold.
The main residence exemption looks simple enough, but it can become complex quickly.
We can help
If you need advice and guidance to ensure you are making the right property investment decisions, please contact our team on 03 9888 3175. We will get you sorted.