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Having a different home from your spouse or dependent child

Last updated 5 October 2009

If you and a dependent child have different homes at a particular time, you must choose one of the homes as the main residence for both of you for the period.

If you and your spouse have different homes at a particular time, you and your spouse must either:

  • choose one of the homes as the main residence for both of you for the period or
  • nominate the different homes as your main residences for the period.

If you nominate different homes for the period and you own 50 per cent or less of the home you have nominated, you qualify for an exemption for your share. If you own more than 50 per cent, your share is exempt for half the period you and your spouse had different homes.

The same applies to your spouse. If your spouse owns 50 per cent or less of the home they have nominated, they qualify for an exemption for their share. However, if your spouse owns more than 50 per cent of the home, their share is exempt for only half the period you had different homes.

This rule applies if you choose to treat a dwelling as your main residence when you no longer live in it (see Continuing main residence status after dwelling ceases to be your main residence), and this choice results in you having a different main residence from your spouse or a dependent child for a period.

Start of example

Example: Spouses with different main residences

Under a contract that was settled on 1 July 1996, Kathy and her spouse Grahame purchased a townhouse where they lived together. Grahame owns 70 per cent of the townhouse while Kathy owns the other 30 per cent.

Under a contract that was settled on 1 August 1998, they purchased a beach house which they own in equal shares. From 1 May 1999, Kathy lives in their beach house while Grahame keeps living in the townhouse. Grahame nominated the townhouse as his main residence and Kathy nominated the beach house as her main residence.

Kathy and Grahame sold the beach house under a contract that was settled on 15 April 2002. As it is Kathy's home and she owns 50 per cent of it, her share of any capital gain or capital loss is disregarded for the period she and Grahame had different homes (1 May 1999-15 April 2002). As Grahame did not live in the beach house or nominate it as his main residence when he and Kathy had different homes, his share of any capital gain or capital loss is not ignored for any of the period he owned it.

Grahame and Kathy also sold the townhouse under a contract that was settled on 15 April 2002. Because Grahame owns more than 50 per cent of the townhouse, it is taken to have been his main residence for half of the period when he and Kathy had different homes.

If the total capital gain on the sale of the townhouse is $10,000, Grahame's share of the capital gain is $7,000 (reflecting his 70 per cent ownership interest). The portion of the gain that Grahame disregards under the main residence exemption is:

$7,000 × (1,034 days [see note 1] ÷ 2,114 days [see note 2]) = $3,423

Plus

$7,000 × 50% × (1,081 days [see note 3] ÷ 2,114 days [see note 2]) = $1,789

Note 1: townhouse was Grahame's home and he and Kathy did not have different homes

Note 2: total ownership period

Note 3: when Grahame and Kathy had the different homes

The total amount disregarded by Grahame is:

$3,423 + $1,789 = $5,212

As Grahame bought the townhouse before 11.45 am on 21 September 1999 and entered into the contract to sell it after that time, and owned his share for at least 12 months, he can use either the indexation or the discount method to calculate his capital gain.

Kathy's share of the $10,000 capital gain on the townhouse is $3,000, reflecting her 30 per cent ownership interest. The portion she disregards is:

$3,000 × (1,034 days [see note 4]) ÷ 2,114 days [see note 5])

Note 4: period before 1 May 1999 when the townhouse was Kathy's home

Note 5: total ownership period

As Kathy entered into the contract to buy the townhouse before 11.45 am on 21 September 1999 and entered into the contract to sell it after that time, and owned her share for at least 12 months, she can use either the indexation or the discount method to calculate her capital gain.

End of example

 

Start of example

Example: Different main residences

Anna and her spouse Mark jointly purchased a townhouse under a contract that was settled on 5 February 1999 and both lived in it from that date until 29 April 2002, when the contract of sale was settled. Anna owned more than 50 per cent of the townhouse.

Before 5 February 1999, Anna had lived alone in her own flat which she rented out after moving to the townhouse. She then sold her flat and settled the sale on 11 March 2000. Anna chose to treat the flat as her main residence from 5 February 1999 until she sold it under the continuing main residence status after dwelling ceases to be your main residence rule.

Because of Anna's choice, Mark had a different main residence from Anna for the period 5 February 1999 to 11 March 2000. Therefore, Mark must either:

  • treat Anna's flat as his main residence for that period or
  • nominate the townhouse as his main residence for that period.

If he chooses to treat Anna's flat as his main residence, a part of any gain Mark makes when he sells the townhouse will be taxable. He will not obtain an exemption for the townhouse for the period that he nominated Anna's flat as his main residence (that is, 5 February 1999-11 March 2000).

If Mark nominates the townhouse as his main residence, he qualifies for a full exemption on any capital gain he makes when it is sold because he owned 50 per cent or less of it. However, because Mark and Anna have different main residences as a result of Mark's choice, and Anna owns more than 50 per cent of the flat, her gain on the flat will only qualify for a 50 per cent exemption for the period from 5 February 1999 to 11 March 2000. Any capital gain Anna makes on the townhouse is taxable except for the period from 12 March 2000 to 29 April 2002 and the part that is ignored under the moving from one main residence to another rule.

End of example

Major capital improvements to a dwelling acquired before 20 September 1985

If you acquired a dwelling before 20 September 1985 and you make major capital improvements after that date, part of any capital gain you make when a CGT event happens in relation to the dwelling could be taxable. Even though you acquired the dwelling before CGT started, major capital improvements are considered to be separate CGT assets from the original asset and may therefore be subject to CGT in their own right if they are made on or after 20 September 1985.

If the dwelling is your main residence and the improvements are used as part of your home, they are still exempt. This includes improvements on land adjacent to the dwelling (for example, installing a swimming pool) if the total land, including the land on which the home stands, is 2 hectares or less.

However, if the dwelling is not your main residence or you used the improvements to produce income for any period, the part of any gain that is attributable to the improvements for that period is taxable.

A capital improvement is taken to be major if its original cost (indexed for inflation) is more than 5 per cent of the amount you receive when you dispose of the dwelling and the improvement is also over a certain threshold. The threshold increases every year to take account of inflation.

Improvement thresholds for 1985-86 to 2001-02

Income year

Threshold

1985-86

$50,000

1986-87

$53,950

1987-88

$58,859

1988-89

$63,450

1989-90

$68,018

1990-91

$73,459

1991-92

$78,160

1992-93

$80,036

1993-94

$80,756

1994-95

$82,290

1995-96

$84,347

1996-97

$88,227

1997-98

$89,992

1998-99

$89,992

1999-2000

$91,072

2000-01

$92,082

2001-02

$97,721

 

Start of example

Example: Improvement on land acquired before 20 September 1985

Martin bought a home in 1984. On 1 December 1993, he undertook major capital improvements worth $85,000. He sold the home for $500,000 under a contract that was settled on 1 December 2001. At the date of sale, the indexed cost base of the improvements was $98,370.

Of the $500,000 he received for the home, $100,000 could be attributed to the improvements. The improvements were used by Martin to produce income from the time they were finished until the time they were sold with the home.

The home first used to produce income rule (explained on page 47) does not apply to the improvements because they were first used to produce income before 21 August 1996.

Test 1

Is the cost base of the improvements more than 5 per cent of $500,000; that is, $25,000?

Yes

Test 2

Is the cost base of the improvements more than the 2001-02 threshold of $97,721?

Yes

As the answer to both questions is Yes and the improvements were used to produce income, the capital gain on the improvements is taxable. The capital gain is calculated as follows:

Amount of proceeds attributable to the improvements

$100,000

less cost base of improvements indexed for inflation

$98,370

Taxable capital gain

$1,630

If the improvements had been used as part of Martin's main residence, this gain would be exempt. However, if the home (including the improvements) had been rented out for one-third of the period, one-third of the capital gain made on the improvements would have been taxable.

As Martin acquired the improvements before 11.45 am on 21 September 1999 and sold the home after that time, and had held the improvements for at least 12 months, he could use either the indexation method (as in the calculation above) or the discount method to calculate his capital gain on the improvements.

End of example

When you dispose of the dwelling, the capital gain or capital loss on the major improvements is calculated by taking away the cost base of the improvements from the proceeds of the sale that are reasonably attributable to the improvements:

Capital gain on major improvements = proceeds of sale attributable to improvements − cost base of improvements

You can choose to calculate the capital gain made on the improvements using either the indexation or the discount method if:

  • the improvements were made under a contract entered into before 11.45 am on 21 September 1999
  • the dwelling was sold after that time
  • you owned the improvements for at least 12 months.

If you entered into the contract to make the improvements after 11.45 am on 21 September 1999, you calculate your capital gain using the CGT discount of 50 per cent.

In calculating the amount of capital proceeds to be attributed to the improvements, you must take whatever steps are appropriate to work out their value. If you make an estimate of this amount, it must be reasonable and you must be able to show how you arrived at the estimated amount.

QC27417