• Continuing main residence status after dwelling ceases to be your main residence

    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 treat a dwelling as your main residence even though you no longer live in it. You cannot make this choice for a period before a dwelling first becomes your main residence.

    Example - Not main residence until you move in

    Therese bought a house and rented it out immediately. Later she stopped renting it out and moved in.

    Therese cannot choose to treat the house as her main residence during the period she was absent under the continuing main residence rule because the house was not her main residence before she rented it out. She will only be entitled to a part exemption if she sells the dwelling.

    This choice needs to be made only for the income year that the CGT event happens to the dwelling - that is, the year that you enter into a contract to sell it. If you make this choice, you cannot treat any other dwelling as your main residence for that period (except for a limited time if you are changing main residences, see Moving from one main residence to another.

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

    If you do use it to produce income, you can choose to treat it as your main residence for up to six years after you cease living in it. If, as a result of you making this choice, the dwelling is fully exempt, the 'home first used to produce income' rule does not apply.

    If you are absent more than once during the period you own the home, the six-year maximum period that you can treat it as your main residence while you use it to produce income applies separately to each period of absence.

    Example - One period of absence of 10 years

    Home ceases to be the main residence and is used to produce income for one period of six years

    Lisa buys a house after 20 September 1985 but ceases to use it as her main residence for the 10 years immediately before she sells it. During this period, she rents it out for six years and leaves it vacant for four years.

    Lisa chooses to treat the dwelling as her main residence for the period after she ceased living in it, so any capital gain or capital loss she makes on the sale of the dwelling is disregarded. The maximum period the dwelling can continue to be her main residence while it is used to produce income is six years. However, while the house is vacant, the period is unlimited, which means the exemption applies for the whole 10 years.

    In addition to this, because the dwelling is fully exempt as a result of Lisa making this choice, the 'home first used to produce income' rule does not apply.

    Home used to produce income for more than one period totalling six years

    In the 10-year period after Lisa stopped living in the dwelling she rents it out for three years, leaves it vacant for two years, rents it out for the next three years, then once more leaves it vacant for two years.

    If she chooses to treat the dwelling as her main residence for the period after she ceased living in it, any capital gain or capital loss she makes on selling it is again disregarded. This is because the period the home was used to produce income during each absence is not more than six years. (See the example below).

    Example - Home ceases to be the main residence and is used to produce income for more than six 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 1992

    Ian was posted to Brisbane and bought another home there.

    1 January 1992 to 31 December 1996

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

    31 December 1996

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

    The period of five years from 1992 to 1996 is the first period the Sydney home was used to produce income for the purpose of the six-year test.

    1 January 1997

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

    1 March 1997

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

    28 February 1999

    The tenant of his Sydney home left.

    The period of two years from 1997 to 1999 is the second period the Sydney home was used to produce income under the six-year test.

    31 December 1999

    Ian sold his home in Melbourne.

    31 December 2000

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

    28 February 2004

    Ian sold his Sydney home.

    Ian chooses to treat the Sydney home as his main residence for the period after he ceased living in it. The effect of making this choice is that any capital gains Ian made on the sale of both his Brisbane home in 1996-97 and his Melbourne home in 1999-2000 are not exempt.

    Ian cannot get the main residence exemption for the whole period of ownership of the Sydney home because the combined periods it was used to produce income (1 January 1992 to 31 December 1996 and 1 March 1997 to 28 February 1999) during his one absence was more than six years.

    As a result, the Sydney house is not exempt for the period it was used to produce income that exceeds the six-year period - that is, one year.

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

    Period of ownership of the Sydney home:

    1 July 1990 to 28 February 2004

    4,991 days

    Periods the Sydney home was used to produce income
    after Ian ceased living in it:

    1 January 1992 to 31 December 1996

    1,827 days

    1 March 1997 to 28 February 1999

    730 days

     

    2,557 days

    First six years the Sydney home was
    used to produce income:

    1 January 1992 to 31 December 1996

    1,827 days

    1 March 1997 to 28 February 1998

    365 days

     

    2,192 days

    Income producing for more than six years after Ian ceased living in it:

    365 days

     

     

    Proportion of capital gain taxable in 2003-04

    $50,000

    x

      365  
    4,991

    =

    $3,657

    Because Ian entered into the contract to acquire the house before 11.45am (by legal time in the ACT) on 21 September 1999 and entered into the contract to sell it after that time, and owned it for at least 12 months, he can use either the indexation or the discount method to calculate his capital gain.

    21 August 1996 important

    The 'home first used to produce income' rule does not apply because the home was first used by Ian to produce income before 21 August 1996.

    End of example
    Last modified: 04 Mar 2016QC 27527