• Continuing main residence status after moving out

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    In some cases you can choose to have a particular dwelling treated as your main residence even though you cease to use it as such. This choice only needs to be made in the income year that the CGT event happens to the dwelling.

    If you do not use it to produce income, you can treat the dwelling as your main residence for an unlimited period after you move out of it.

    If you do use it to produce income after you move out, the total period of income producing use cannot be more than 6 years for any period you are absent. This can consist of one or more smaller periods of income producing use which total up to 6 years.

    Example

    One period of absence of 10 years

    Income producing use for one period of 6 years

    Elizabeth buys a house after 19 September 1985 but ceases to use it as her main residence for the last 10 years before she sells it. During this period she rents it out for 6 years and leaves it vacant for 4 years.

    Any capital gain or loss Elizabeth makes on the sale of this dwelling is disregarded. The maximum period that the dwelling can continue to be her main residence while income producing is 6 years but, while it is vacant, the period is unlimited. Therefore the exemption applies for the whole 10 years.

    Income producing use for more than one period totalling 6 years

    If Elizabeth rents the dwelling out for 3 years, leaves it vacant for 2 years, rents it out for the next 3 years, then once more leaves it vacant for 2 years, any capital gain or loss she makes on selling it is again disregarded.

    This is because the total period of income producing use during this absence does not exceed 6 years.

    If you are absent more than once during the period you own your home, the 6-year period of income producing use applies separately to each period of absence. However, your home must again become your main residence after each period of absence.

    If you make this choice, no other dwelling can be treated as your main residence unless you are moving from one main residence to another. See page 31 for more information.

    Example

    Income producing use for more than 6 years during a single period of absence

    1 July 1990

    Ian bought a home in Sydney and used it as his main residence.

    1 January 1991

    Ian was posted to Brisbane for 2 years and bought another home there.

    1 January 1991 to 31 December 1995

    Ian rented out his Sydney home during the period he was posted to Brisbane.

    31 December 1995

    Ian sold his Brisbane home and the tenant in his Sydney home left.

    These 5 years constitute the first period of income producing use of the Sydney home for the purpose of the 6-year test.

    1 January 1996

    Ian was posted from Brisbane to Melbourne for 3 years and bought a home in Melbourne. He did not return to his Sydney home.

    1 March 1996

    Ian again rented out his Sydney home - this time for 2 years.

    28 February 1998

    The tenant of his Sydney home left.

    The 2 years from 1996 to 1998 constitute the second period of income producing use of the Sydney home for the purposes of the 6-year test. The combined periods of income producing use are now 7 years because Ian's Sydney home did not become his main residence at any time between the 2 periods that it was producing income.

    31 December 1998

    Ian sold his home in Melbourne.

    31 December 1999

    Ian returned to his home in Sydney and it again became his main residence.

    28 February 2000

    Ian sold his Sydney home.

    Ian cannot choose to have his Sydney home treated as his main residence for the whole period of ownership because the combined periods of income producing use - 1 January 1991 to 31 December 1995 and 1 March 1996 to 28 February 1998 - are more than 6 years. As a result, his Sydney home is not exempt from capital gains tax for the period of income producing use that exceeds the 6-year period - that is, one year.

    If the capital gain on the disposal of the Sydney home is, say, $50,000, the amount of that gain subject to tax is calculated as follows:

    Period of ownership of the Sydney home

    1 July 1990 to 28 February 2000

    3530 days

    Periods of income producing use of the Sydney home

    1 January 1991 to 31 December 1995

    1826 days

    1 March 1996 to 28 February 1998

    731 days

    2557 days

    First 6 years of income producing use of the Sydney home

    1 January 1991 to 31 December 1995

    1826 days

    1 March 1996 to 28 February 1997

    365 days

    2191 days

    Income producing use more than 6 years

    366 days

    Proportion of capital gain subject to tax and payable in 1999-2000

     366 
    3650

    X $50,000

    $5,184

    Ian can choose either to reduce this gain by the 50 per cent CGT discount (after applying any capital losses) or calculate the gain using the frozen indexation method.

    In addition Ian would have paid tax on any capital gains he made on the sale of both his Brisbane home in 1995-96 and his Melbourne home in 1998-99.

    Last modified: 18 Sep 2009QC 18323