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You can ignore any income producing use of your home during any period of absence up to a maximum of 6 years while you continue to treat it as your main residence. This does not apply if the home was partly used to produce income before and during the period of absence.
Part of the home used to produce income while a main residence and the home later used to produce income during a period of absence
Tanya purchased a home on 1 July 1991 and moved in immediately. She used 75 per cent of the home as her main residence and the remaining 25 per cent as a doctor's surgery, which she used until 30 June 1994. On 1 July 1994 she moved out and began to rent out the home.
The home was rented until it was disposed of on 30 June 2000. Tanya chose to treat the dwelling as her main residence for the 6 years during which the house was rented out. She made a capital gain of $10,000 when the home was sold.
As 25 per cent of the home was income producing both before and after her absence, Tanya is liable to pay tax on a portion of the capital gain, calculated as follows:
$10,000 x 25% = $2,500.
Tanya can choose either to reduce the gain by the 50 per cent CGT discount (after applying any capital losses) or calculate the gain using the frozen indexation method.
Last modified: 18 Sep 2009QC 18323