• Home first used to produce income

    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

    If you start using your main residence to produce income for the first time after 20 August 1996, a special rule affects the way you calculate your capital gain or capital loss.

    In this case, you are taken to have acquired the dwelling at its market value at the time it is first used to produce income if all of the following apply:

    • you acquired the dwelling on or after 20 September 1985
    • you first used the dwelling to produce income after 20 August 1996
    • when a CGT event happens in relation to the dwelling, you would get only a part exemption because the dwelling was used to produce assessable income during the period you owned it, and
    • you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income.

    If a deceased's main residence passed to you as a beneficiary or as trustee of their estate on or after 20 September 1985, you are taken to have acquired the dwelling at its market value at the time it was first used to produce your income only if:

    • you first used the dwelling to produce income after 20 August 1996
    • when a CGT event happens in relation to the dwelling, you would get only a part exemption because the dwelling was used to produce assessable income during the period you owned it
    • you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income, and
    • the CGT event did not happen in relation to the dwelling within two years of the person's date of death.

    Full exemption

    You may have made the choice to treat a dwelling as your main residence after the dwelling ceases to be your main residence (see Continuing main residence status after dwelling ceases to be your main residence). In this case, if the dwelling is fully exempt, the 'home first used to produce income' rule does not apply.

    In working out the amount of capital gain or capital loss, the period before the dwelling is first used by you to produce income is not taken into account. The extent of the exemption depends on the period after that time and the proportion of the home used to produce income. The example below explains this.

    Example - Home first used to produce income after 20 August 1996

    Louise purchased a home in December 1991 for $200,000. The home was her main residence. On 1 November 2002, she started to use 50% of the home for a consultancy business. At that time the market value of the house was $220,000.

    She decided to sell the property in August 2003 for $250,000. As Louise had not ceased living in the home, she could not get a full exemption under the 'continuing main residence status after dwelling ceases to be your main residence' rule. The capital gain is 50% of the proceeds less the cost base.

    Percentage of use

    x

    (proceeds - cost base)

    =

    capital gain

    50%

    x

    ($250,000 - $220,000)

    =

    $15,000

    Louise is taken to have acquired the property on 1 November 2002 at a cost of $220,000. Because she is taken to have acquired it at this time, Louise is taken to have owned it for less than 12 months and must use the 'other' method to calculate her capital gain.

    End of example
    Last modified: 04 Mar 2016QC 27527