Author: Ben Walker
CGT Main Residence Exemption – Tips, Tricks, and Traps
Under ordinary circumstances the sale of a property would attract Capital Gains Tax (CGT). However, you can avoid paying CGT if you sell a dwelling that is considered to be your main place of residence. But what is your ‘Main Residence,’ and how do you know if the exemption applies?
Is the Property I’m Selling my Main Residence?
Generally speaking, your main residence is your home. A few examples of factors the Australian Taxation Office (ATO) considers relevant in identifying your main residency are:
Whether you and your family live there;
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 and utilities (for example, phone, gas, or electricity);
Your intention in occupying the dwelling.
Please note there is no minimum time a person has to live in a home before it is considered to be their main residence
In order for the Main Residence CGT exemption to apply, the property being sold must include a dwelling. A dwelling is anything that is used wholly or mainly for residential accommodation. Examples of a dwelling are:
a home or cottage;
an apartment or flat;
a strata title unit;
a unit in a retirement village;
a caravan, houseboat or other mobile home.
A mere intention to construct or occupy a dwelling as your main residence – without actually doing so – is not sufficient to obtain the exemption. You must physically occupy the dwelling.
Can I Have More Than One Main Residence?
You can only ever have one main residence at any given point in time unless you're selling your old main residence and buying another. In this case you're entitled to an overlap period of six months as long as:
1) the new property will be your main residence after the sale of the old property;
2) you lived in the old property for at least three continuous months in the 12 months prior to sale; and
3) it wasn't used to produce rent in this same 12 month period.
Can I Earn Rental Income from My Main Residence?
While you can only have one main residence at any point in time you do not need to live in the dwelling for the entire holding period for it to continue to qualify for the exemption. If you own a property which is currently your main residence you can move out of the property for up to six years. During that time you can earn rental income on the property and claim a tax deduction for expenditure as you would with a normal investment property. Providing you re-occupy the building before the end of the six period and do not dispose of the property within the same financial year that the property was earning rental income you can still qualify for the full exemption.
Does the Main Residence Apply to Property Renovators?
The simple answer is yes! If you purchase a property, occupy the dwelling while undertaking renovations and then sell the property only to move into another dwelling and repeat the process, any profit you make on the sale of each property is generally tax exempt.
Can I Subdivide My Block of Land and Apply the Main Residence Exemption to the Proceeds from the Sale?
As discussed, the main residence exemption requires a dwelling to exist on the property that is sold. If you have a large block of land and subdivide the land so that you can sell off a part of the unused land, there is typically not a dwelling on this parcel. Therefore, any profit on this sale would attract Capital Gain Tax.
However, it is important to note that if the reverse situation applies and you purchase the neighbouring block of land to obtain a larger back yard, the main residence exemption will apply to the sale of your main residence and the adjoining block provided both properties are sold together and the total area of land does not exceed 2 hectares.
What if I Can No Longer Live in My Main Residence?
The main residence exemption can also apply where the owner is no longer able to reside in the dwelling, because they have lost the ability to live independently and require full time care. This ensures that property owners who spend extended a period in hospital, must relocate to a residential care facility, or who relocate to live with a care giver can still access the main residence exemption when they sell the property to pay living and medical expenses.