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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.

 


 

Comments

  1. Jack Thonet says

    (Edit)

    Hi,

    Thank you for posting this article.

    I am referring to this paragraph:
    Can I Earn Rental Income from My Main Residence?

    More specifically: 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.

    After a lengthy research I cannot find any piece of law that puts forward the requirement
    of moving back into the dwelling before selling.
    Also I couldn’t find the requirement of not producing income the same tax year.
    (my accountant told me earlier a period to 3 – 6 months may be required)
    Could you please tell me which part of the legislation mentions this?

    Thank you very much in advance.

    Kind regards,

    Jack Thonet
    jjthonet@yahoo.com.au

    • Ben Walker says

      (Edit)

      Hi Jack,
      Thanks for your comment – that’s a great question.

      And to confirm as per the ATO website, you can either move back in within 6 years, or sell within 6 years (without moving back in). But it’s the 6 year mark that you have to make that decision to be able to claim that exemption.

      I would recommend getting advice to your circumstances if you are concerned or would like that peace of mind.
      Cheers,
      -Ben

      • Darrin says

        (Edit)

        Hi Ben,

        Interesting stuff. I recently moved back from living 10 years in London where my wife and had our primary place of residence. We moved back to Australia in 2014, rented the house in London form January 2014 and put it up for sale and is due to sell in July 2015. We brought a house in Australia in January 2015 and have found out the this house may not be able to be considered PPR due to us deriving income from the Adelaide house. No rental income will be received in July of 2015.

        Is there any way we can make the Australian house our PPR now?

        Thanks
        Darrin

        • Ben Walker says

          (Edit)

          Hi Darrin,
          I might frame it by saying there’s a lot I don’t see about your situation, but there’s nothing above that indicates that it couldn’t be a PPR.
          Always good to get advice around it, as it could cost / save you thousands down the track.
          Cheers,
          -Ben

      • Jessica says

        (Edit)

        Hi Ben,

        What if I buy a property but it has just been tenanted and I don’t want to kick the people out but I move in after their lease period expires. Will I be exempt from CGT when I sell the property?

        Thank you,
        Jessica

  2. Michael says

    (Edit)

    Hi Ben

    great read, very enlightening, thank you.

    My question relates to:Can I Subdivide My Block of Land and Apply the Main Residence Exemption to the Proceeds from the Sale?

    I’m subdividing (technically only a boundary adjustment) my rear land to two separate neighbours. The rear land does not have an existing dwelling located on it. Each parcel of land is <50sqm each. One contract involves the sale of my land for an agreed amount plus the neighbour is giving me some of there land so that the minimum Lot size of my main residence is protected. Will I be subject to CGT?

    Any advice/insight gratefully received.

    Thanks
    Michael

    • Ben Walker says

      (Edit)

      Hi Michael,
      There’s a few factors with what you’ve described. You’ll also be technically receiving new land (and the neighbours will be ‘disposing’ of an interest in a few sq metres).
      I would say you may be up for capital gains tax on part of that transaction, but always good to get advice around it before you proceed.
      Cheers,
      -Ben

  3. Lisa Barraclough says

    (Edit)

    HI,

    i have separated with my husband & one of our rental properties will become my prime residence. i was hoping to only live in it for 12months then try to sell it. do i have to pay Capital Gains Tax? It was a rental for 4 years in mine & my husbands name.
    Cheers Lisa

  4. James Ashely says

    (Edit)

    Hi Ben,

    We bought and moved in a property in Camberwell on 20/8/2009. And we bought another property in Canterbuty on 5/12/2014. We plan to move into Canterbuty once the renovation is complete which it would be next March 2016. We plan to sell Camberwell in March 2016. Should we stay at Camberwell the whole time or move in to Canterbury then do the renovation. It takes longer than six months to dispose of my old home in Camberwell, both homes are exempt only for the last six months before I dispose of the old one. I understand we have to pay CGT for both of homes, but what’s the best strategy to avoid pay less CGT?

    Thanks,

    James

    • Ben Walker says

      (Edit)

      Hi James,
      We’d need a bit more context on your situation before we could suggest a way forward that would minimise any tax you would have to pay. I’ll shoot you an email shortly with a way we can help you.
      Cheers,
      -Ben

  5. Shane says

    (Edit)

    Hi Ben, this is really good info thanks.
    My house of 10years (principle place of residence) is built on 1012m2 block that is already 2 registered titles, eg 2-4 Smith st. The old house is built across the 2 lots and I am hoping to demolish the house and sell the 2 lots separately, with the sale of 2 vacant blocks of land I assume I would be hit with CGT , Can I get a valuation done just prior to demolition and only pay CGT on the difference between that and realised sale price of the land should that be greater than the valuation price and none if the sale price was less.
    Thanks Ben

    • Ben Walker says

      (Edit)

      Hi Shane,
      That one is a bit tricky, and there may be a better way to structure that so you can reduce tax.
      I’ll send you an email personally with an option of us helping you with this.
      Cheers,
      -Ben

  6. Belinda says

    (Edit)

    Hi Ben, thank you for the info, I have a question please – we are in the process of buying a house which is currenltly tenanted and we are renting too, we do not own any other property. We want to look at staying renting for 7 months and keep the tenant on for 6 months – and then we will renovate while empty for 1 month and then move into the home. We want to give ourselves the time to plan the renovation and get the necessary plans approved. As we will be increasing the capital value with the renovations when we do come to sell will we be liable for CGT as we rented out the home for 6 months before moving in? Will it be pro-rated – we can get a valuation when the tenant moves out to say we have not carried out any improvements while the property was tenanted.

    Many thanks
    Regards Belinda

  7. James says

    (Edit)

    Hi Ben,

    This seems fairly simple, but I’m wondering if you can let us know if we’re exempt from CGT. Currently living in a house (call it House A) with a mortgage, looking to build an investment property (call it House B) around the corner. If we build House B, move into it immediately (transferring bills, electoral roll, etc) and then sell within say 6 months (while still keeping house A and not renting it out, just leaving it unoccupied) are we exempt from CGT? Am I looking at this too simplistically?

    Thanks.

    • Ben Walker says

      (Edit)

      Hi James,

      There’s no red flags for me here – but please note (should be in the article above) that you cannot claim the exemption on two or more properties at the same time.

      Feel free to reach out if you’d love some formal advice too.

      Cheers,
      -Ben

      • Cathy says

        (Edit)

        Hi Ben I have a similar question. I understand you can only have one main residence / PPR at any time. But what if I move backinto my initial PPR (House A) after six months in THE investment property (conducting repairs/improvements).? I would sell the investment property within 6 years and recieve discounted (full exemption?) CGT but how will this affect the application of CGT on my house A if I sell it in say 10 years?

        • Ben Walker says

          (Edit)

          Hi Cathy,

          To advise, I would have to know more about when you purchased each property etc.

          If you’d like formal advice, do reach out on our contact page too 🙂

          Cheers,
          -Ben

  8. CJ says

    (Edit)

    Hi Ben,

    If a NZ resident owns a property in Australia and holidays here for 4 months every year could this be treated as their PPR even though they have never been an Australian resident for taxation purposes ?

    PS,, There is no CGT in NZ.

    cheers,
    CJ

  9. Grim Horn says

    (Edit)

    Hi, I am trying to find out what our CGT obligations are with the scenario described below. None of the examples seem to fit.
    We purchased a house on a large block in Qld in 2000. We renovated and moved in and it was our PPR. We built a brand new home for ourselves in 2010 on the same block beside this house. Once it was complete we moved in, subdivided, and are nominating this new home as PPR. We have since rented the original house out. None of this was done to intentionally make money we just wanted a new home in the same suburb. We now want to sell the original home due to land tax issues. We have a valuation on the old house at time of moving out. Nothing I can find on the ATO site seems to fit our exact situation. Any feed back would be much appreciated, thanks.

    • Ben Walker says

      (Edit)

      Hi Grim,
      This has the resonance of things going in favour for you.
      Happy to have a chat and provide formal advice if you’d like – I’ll send through an email in a moment!
      Cheers,
      -Ben

  10. SBS says

    (Edit)

    Hi Ben,
    We have sold our backyard subject to council approval of a ‘ minor boundary realignment’ the original house and garden were on 2 lots with 2 titles, does this make a difference when it comes to CGT ? Ie as it was originally 2 lots on 2 titles – is this treated the same way as a straightforward subdivision that started out as 1 title/ 1 lot and became 2? Also , as we have been paying a mortgage on the property for the past 10 years, can we offset a portion of the interest paid, council rates etc to our cost base?

    • Ben Walker says

      (Edit)

      Hi Sarah & Andrew,

      Unfortunately it sounds as though selling your backyard without a ‘dwelling’ on it will attract CGT.

      See the section above: Can I Subdivide My Block of Land and Apply the Main Residence Exemption to the Proceeds from the Sale?

      You have a similar situation, even though you purchased the block already on two lots.

      If you have any questions or would like formal advice, let us know through the contact forms.

      Cheers,
      -Ben

  11. JW says

    (Edit)

    Hi Ben

    My brother and I recently sold the family home that we inherited in 2012. My brother continued to live in the house after we inherited it. My husband and I regularly stayed in the house, as it is interstate from the house we live in (which we purchased in 1984, so not subject to CGT).

    I have read that you can have more than one main residence and only need to make a choice about which one is exempt from CGT when you submit your tax return. I have also read that you only need to live in the residence for which you are claiming the main residence exemption for a short time.

    Would it be possible for me to claim main residence exemption for the house recently sold given that I was living there for several periods of time, especially in the first year after my brother and I inherited it? What evidence would I need to show.

    Thank you for your advice.

    • Ben Walker says

      (Edit)

      Hi Janice,
      Thanks for your question.
      And one that’s fairly complex… Because you’ve also got to consider CGT rules around inheritance, along with only short periods out of the overall time that you lived in the house.

      Unfortunately not one that I can easily answer without gaining a better understanding. Reach out on the contact us page if you’d like some personal, formal advice about it.
      Cheers,
      -Ben

  12. Lee says

    (Edit)

    We are currently renting, but have purchased vacant land in Melbourne and are about to start construction of our new home. However, I have been offered a new job in a new area. If we sell this home (once it is built) without living there,
    Will we need to pay CGT?

  13. Jules says

    (Edit)

    Hi Ben,

    How should this scenario be treated? We have just bought a property but because we are still in lease we are renting it out for 6 months until our lease finishes and we can move in.

    Do we have to declare this as income? If so, can we claim the difference between ongoing and outgoing? Gap between rent and mortage payments, interest etc?

    Secondly would property be liable for capital gains tax?

    Any thoughts would be great

    • Ben Walker says

      (Edit)

      Hi Jules,

      Thanks for the question! 🙂

      Here’s my answer in a general sense based on my interpretation of your situation:

      Simple answer, yes you will be required to pay tax on the rent income. (But you can claim expenses.) Best to speak to an accountant about claiming all of your expenses.

      Also, with the capital gains tax, you will be required to pay it on the increase in any value during that 6 months that it took you to move in. (There is no exemption from what I understand of your situation.) But if there is no increase in value, there will be no CGT.

      Cheers,
      -Ben

  14. Martina says

    (Edit)

    Hi Ben
    Our primary point of residence between 1997 and 2014 was house A. In March 2014 we moved into House B and rented out House A. In May 2015 House A ceased to be a rental property, and remained vacant until it was sold on November 2015.

    House A was positively geared (no negative gearing was applied).

    For what period of time does CGT apply on sale price of House A.

    What else can would I need to consider that you think would be helpful in preparing my tax.

    Thanks.

    • Ben Walker says

      (Edit)

      Hi Martina,

      You might find that you can choose to elect there is actually no CGT on House A (depending on your full circumstances).

      Have a read of the section above: Can I Earn Rental Income from My Main Residence?

      And you’ll see the bit about 6 years 🙂

      Do reach out through our contact page if you’d like some formal advice, too.

      Cheers,
      -Ben

      • Martina says

        (Edit)

        Thanks Ben.

        I probably should have mentioned that we purchased House B (not renting).

        The six year rule seems to apply to us in some area’s but not others.

        Thanks for your input.

        Martina

  15. Barbara Thorsen says

    (Edit)

    Thanks for a very informative article, Ben. I have a question regarding the sale of your home and the adjoining block of land exemption and the meaning of “sold together” . Do the two properties have to be sold to the same person? Or would it be sufficient to put the two up for sale at the same time?

    • Ben Walker says

      (Edit)

      Hi Barbara,

      To qualify for the exemption, each block needs to contain a dwelling.

      (I’m not sure whether I understood your question, though?)

      Cheers,
      -Ben

      • Barbara Thorsen says

        (Edit)

        We bought the vacant block of land adjoining our property to give us a larger backyard. Only one of the blocks has a dwelling on it (our main residence). We want to sell both at the same time (I.e put them on the market at the same time) but chances are they will be sold to two different buyers and at different times. The CGT exemption you mention above applies when the two properties are sold together. What exactly does “sold together” mean in this scenario?

        • Ben Walker says

          (Edit)

          Hi Barbara,

          My interpretation of ‘sold together’ is that the block is sold in one contract, to a single purchaser. (Not two different sales.)

          Hope that helps!

          Cheers,
          -Ben

  16. Arun Bhuta says

    (Edit)

    I have purchased a big block with house on it. It my family PPR for last 5 years. Now there is rezoning. I like to redevelop it and build 8 town houses. I will keep all the town houses and put them on rent.What are obligation under CGT and GST.

    • Ben Walker says

      (Edit)

      Hi Arun,

      I’d encourage you to seek formal, professional advice on this – a big move like that, you need expertise in the realms of tax.

      Cheers,
      -Ben

  17. Darren says

    (Edit)

    Hi Ben,

    Thanks for the article. I have a question was hoping you could shed some light on. If there is a cross over period between of less than 6 months where we bought a new house but hadn’t sold old primary residence, we can’t claim full CGT exemption if the old primary residence was used to derive rental income. We want to claim new house as primary residence therefore do we simply work of the CGT on the old residence for the ‘cross over’ period only? Apparently there is a special rule where we have to add back interest deductions claimed on old residence as well?

    Thanks
    Darren

    • Ben Walker says

      (Edit)

      Hi Darren,
      It looks like there’s a few layers crossing over in your comment.

      Happy to provide formal advice in a complex situation – do let me know and I can reach out with the next steps.
      Cheers,
      -Ben

  18. Rejina says

    (Edit)

    Dear Ben,

    If we have two properties in possession and both sold in the same financial year – both residence at the start, do I get to chose which property I pay tax on for the overlapping period, regardless of which one was actually been PPR for that period?

    Thank you

    • Ben Walker says

      (Edit)

      Hi Rejina,

      You may get to elect which one is exempt – depending if they were both PPR’s. (You cannot elect if they were investment properties and you never lived in one of them as an example)

      Cheers,
      -Ben

  19. marian thompson says

    (Edit)

    Hi Ben
    I have lived in the same house since 1982.

    After getting divorced in 1995 I bought my ex husbands share of the house. Given that this was after 1985 does this still make me exempt from CGT should I decide to rent it out and sell it later down the track.
    Thanks for any advice you can give.

    Marian

    • Ben Walker says

      (Edit)

      Hi Marian,

      Regardless of when the property was purchased, if you lived in it, then you can treat it as CGT exempt under the Primary Place of Residence exemption.

      You’ll also have the 6 year rule (after you start renting it) to call it your PPR.

      Lots of moving parts, so please get some detailed advice.

      Cheers,
      -Ben

  20. Jen says

    (Edit)

    Hi Ben,

    Can you help me with my scenario? I bought a unit Nov 2008 and lived in it immediately. In Feb 2012 I moved out of it and rented it out while I rented a property elsewhere (to this day). Is my unit still my main residence for tax purposes and CGT exempt until Jan 2018 (6 years)?

    Am I entitled to get the CGT exemption if I sold my unit before Jan 2018 (ie before 6 years)? Do I need to move back into it?

    I am thinking about buying a house to move into later this year (2016) and keep my original unit rented out. Can I still call my rental unit my main residence for CGT exemption purposes if I sold it prior to the 6 year mark (Jan 2018)? How will this situation be treated for tax purposes?

    Thanks

    • Ben Walker says

      (Edit)

      Hi Jen,

      You’ve got a few questions in here, but here goes:

      – You can rent out your unit and if you sell if before the 6 year mark, then you can elect to not pay the CGT.

      – If you do that, you can not treat a new home as your PPR during the time up until you sell the unit.

      Hope that helps – and as always, please get detailed advice.

      Cheers,
      -Ben

  21. Matt says

    (Edit)

    Hi Ben

    Recently separated from wife and moved out of the family home (which is in my name). She wants to rent this back off of me for a period of say 4-5yrs. I will have to rent a place of my own in the mean time, but I will also be able to claim deductions and interest expense on the property that she would now rent form me.

    Q – if I then sell this at the end of the 5yrs, would I be subject to a CGT?

    • Ben Walker says

      (Edit)

      Hi Matt,

      If you’re declaring the income, then you can claim the expenses.

      My view (on a surface level) is you can treat this as your PPR (exclusively) for up to 6 years before selling it.

      Always get personalised advice, though!

      Cheers,
      -Ben

  22. Linda says

    (Edit)

    Hi Ben, I own my own house and have recently moved in with a partner who also owns his house. I propose to let my house for the income.

    Does it remain my PPOR? Or does my partners house become that even though I have no legal interest in it.?

    cheers

    Linda

  23. Bruce Tangey says

    (Edit)

    Hi Ben your comments are very interesting. I purchased a townhouse in country Victoria on 1st December 2015. I am not happy here and want to sell up and move on to Queensland to be closer to my family. I am 72, retired with some allocated super and a pension. I am separated. Will I be eligible for CGT exemption due to my income?
    Hope you can assist me.
    Regards.
    Bruce.

    • Ben Walker says

      (Edit)

      Hi Bruce,

      Sorry to hear that – and hope you do move up to be with your family in Queensland.

      My observations are:

      – You should be eligible for the CGT exemption as long as you moved into your townhouse soon after settlement

      – Pension should not effect CGT exemption

      Hope that helps! 🙂

      Cheers,
      -Ben

  24. Ben Wagner says

    (Edit)

    Hi Ben,

    I own an old house on a large block. I want to demolish the house and build a townhouse on one half of the block, live in the townhouse, then subdivide and build another townhouse on the other half of the block. Once townhouse 2 is complete I will sell townhouse 1 and move into town house 2 indefinitely. Can I claim the main residence exemption fully or am I subject to CGT or income tax as a development?

    Thanks,

    Ben W

    • Ben Walker says

      (Edit)

      Hi Ben,

      This is a little bit tricky – in principle, you could avoid CGT, but you must meet certain conditions. Definitely talk to an accountant for some formal advice.

      Cheers,
      -Ben

  25. Dora says

    (Edit)

    Hi Ben,

    I bought a villa in Jan 16, moved in straight away (all the mailing address has been changed) and currently doing some internal renovations (bathroom, kitchen and laundry, etc).

    Hope i can sell in May 16 for with a profit.

    Does the CGT apply if i sell this house?

    Thank you,
    Dora