What is main residence exemption?
Main residence exemption refers to the exclusion of Capital Gains Tax (CGT) when selling your main residence e.g. your house. If you are an Australian resident or, have met the eligibility criteria for foreign residents, you are exempt from paying tax on the profit made from selling your property. Exemptions can be in part or in full. You get full exemption when you meet all the main residence criteria. You may get part exemption when your home qualifies for it only in part. See further details below.
What is a “dwelling”?
A dwelling is anything used for residential accommodation, including:
• A house or cottage
• An apartment or strata title unit
• A unit in a retirement village
• A mobile home (caravan, houseboat, etc)
What are the pre-requisites for main residence exemption?
Your main residence is exempt from CGT if you are an Australian resident and the dwelling:
• has been home for you and your family for the whole period you owned it
• is not a deceased estate.
• is on a land of 2 hectares or less
What is a main residence?
Your dwelling can be considered your main residence if it is where:
• you and your family live.
• you keep your personal belongings.
• your mail is delivered to.
• you registered as your address on the electoral roll.
• your utilities are installed and billed to.
• you intended to be your home when you bought the place.
What exemption do I get if I sell my home in separate parts?
When you sell your home as separate structures, those structures that are sold separately from the one where you reside in, for example, your garage, may be deemed a separate property from your main residence and therefore subject to CGT.
What happens if I cannot move into my new home after selling the old one?
Generally, you can only have one main residence at a time. However, if you are selling your old home and are unable to move into the new one immediately, you have up to 6 months to claim CGT exemption on both your old and new home as your main residence.
Can I treat my former home as my main residence?
Usually, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence:
• for up to 6 years if you used it to produce income, such as rent (sometimes called the ‘6-year rule’)
• indefinitely if you didn’t use it to produce income.
What happens to when I use my home for rental or business
When using part of your home to rent out or to run a business while living in it, the portion of the property that you use for income generating purposes will be subject to CGT.
What if you are a foreign resident?
If you do not hold residency in Australia, you may not be eligible to claim main residence exemption unless you meet the requirements of the Life Events Test.
What is the Life Events test?
If you are a foreign resident, you may be able to claim the main residence exemption if the following life events occurred to you:
• You were a foreign tax resident for a continuous period of up to 6 years.
• During the time of holding the residency one of the following have occurred:
1. You, your spouse, or your child (under 18 years) had a terminal medical condition.
2. Your spouse or your child (under 18 years) passed away.
3. The CGT arises from asset splitting due to divorce
Exemptions of the Life Events test:
You do not need to apply the Life Events test if:
1. You have bought the property before 7:30 pm on the 7th of May 2017.
2. You have sold your property before 30th of June 2020.
How can we help?
Our friendly team at Wilson & Assoc. will assist you in identifying if you are eligible for Main Residence Exemption. We can help navigate your Capital Gains Tax and identify potential income tax deductions for your tax return. Feel free to contact our team for more information.
Source: Australian Taxation Office