• Real estate that was a main residence

    Transfers from your spouse where the capital gains tax (CGT) event happened on or before 12 December 2006

    If a dwelling (or an interest in a dwelling) acquired by your spouse on or after 20 September 1985 was transferred to you under a CGT event that happened on or before 12 December 2006, and marriage or relationship breakdown rollover applies, you are entitled to an exemption from CGT (when you dispose of it) for the period it was your main residence after it was transferred to you.

    If the dwelling was your main residence, you may only qualify for a partial exemption if:

    • it was your main residence for only part of the period after it was transferred to you
    • you used it to produce assessable income, or
    • the land on which the dwelling is situated is more than two hectares.

    Keep all relevant records. Make sure you get any records you need from your spouse if you don’t already have a copy, including records that show:

    • how and when they acquired the dwelling (or the interest in a dwelling)
    • its cost base when they transferred it to you.

    Transfers from your spouse where the CGT event happened after 12 December 2006

    If a dwelling (or an interest in a dwelling) acquired by your spouse on or after 20 September 1985 was transferred to you under a CGT event that happened after 12 December 2006, and the marriage or relationship breakdown rollover applies, you take into account the way in which both of you used the dwelling during your combined period of ownership when determining your eligibility for the main residence exemption.

    This means you are entitled to a full exemption from CGT (when you dispose of it) if the land on which the dwelling is situated is two hectares or less, and:

    • during the period your spouse owned the dwelling, it was their main residence and was not being used by them to produce assessable income
    • during the period you owned the dwelling it was your main residence and was not being used by you to produce assessable income.

    If any of these conditions are not met, you may qualify for a partial exemption.

    If the dwelling was not you or your spouse’s main residence during all of your combined period of ownership, you work out the proportion of your capital gain that is taxable using the formula:

    Total capital gain or capital loss

    X

    (Number of days it was not your spouse’s main residence during their ownership period
    +
    Number of days it was not your        main residence during your ownership period )       
    Number of days in your combined period of ownership

    Keep all relevant records. Make sure you get any records you need from your spouse if you don’t already have a copy, including records that show:

    • how and when they acquired the dwelling (or the interest in a dwelling)
    • its cost base when they transferred it to you
    • the extent (if any) to which it was used to produce income during their ownership period – for example, the periods it was rented out or available for rent – and the proportion of the dwelling that was used for that purpose
    • the number of days (if any) it was their main residence during their ownership period.

    Example: Dwelling transferred to you under a CGT event that happened after 12 December 2006 becomes your home.

    George and Natalie jointly purchased a holiday home on 0.1 hectare of land. Settlement of the purchase contract happened on 13 March 2014. On 13 March 2016, George transferred his half interest to Natalie under the terms of an arbitral award.

    Natalie uses the dwelling as her main residence for three years from the date of the CGT event until she sells it. Settlement of the sale contract happens on 13 March 2019.

    Because the dwelling was Natalie’s main residence for three years out of the five years she owned her original interest, she is entitled to a 60% main residence exemption on that interest.

    Because George’s half interest in the dwelling was transferred to Natalie under a CGT event that happened after 12 December 2006 and CGT marriage or relationship breakdown rollover applied, Natalie is also entitled to a 60% main residence exemption on that half interest – having regard to how they both used that interest during their combined period of ownership.

    In working out the cost base of the interest George transferred to her, Natalie adds any relevant costs she incurred after George transferred it to her to the cost base of his interest at the time of the transfer.

    End of example

    ‘Home first used to produce income’ rule applies to combined period of ownership

    If a dwelling acquired on or after 20 September 1985 is used as a main residence from the time it is acquired and is later used to produce income, the 'home first used to produce income' rule may apply. For the rule to apply, the first income-producing use must be after 20 August 1996 and the dwelling must qualify for full main residence exemption immediately prior to it being used to produce income.

    If the dwelling (or an interest in the dwelling) is transferred to you under a CGT event that happened after 12 December 2006, and CGT marriage or relationship breakdown rollover applies to the transfer, the CGT main residence exemption rules take into account the way you and your spouse use the dwelling during your combined period of ownership.

    Where the ‘home first used to produce income’ rule and marriage or relationship breakdown rollover apply and the dwelling (or an interest in the dwelling) was transferred to you by your spouse, you are taken to have acquired it at the time it is first used to produce income for its market value at that time. The first income-producing use may be during you or your spouse’s ownership period.

    Example: Home transferred under a CGT event that happens after 12 December 2006 and ‘First used to produce income’ rule applies

    Harry bought a house on 0.2 hectares of land for $200,000 on 17 November 1999. It was his main residence and was not used by him to produce income.

    On 1 June 2012, he and Anita started living together as husband and wife. Harry moved into Anita’s townhouse and rented out the house. It was valued at $250,000 at the time.

    Harry and Anita had one child before their relationship broke down in 2015. Harry gave notice to the tenants that the lease on the house wouldn’t be renewed.

    On 1 June 2016, Anita moved into the house with their child. Under a binding agreement entered into on the same day, Harry transferred the house to Anita. CGT rollover applied. (Anita also transferred her townhouse to Harry under the agreement).

    Anita is taken to have acquired the house on 1 June 2012 for the market value at that time ($250,000) because:

    • Harry acquired the house after 19 September 1985
    • it was Harry's main residence from the time he became the owner
    • the house was first rented out after 20 August 1996
    • the CGT event under which the house was transferred to Anita happened after 12 December 2006 and CGT rollover applied
    • Anita would be entitled to a part main residence exemption on the sale of the house
    • Harry would have obtained a full main residence exemption had he sold it just before he began renting it out on 1 June 2012.

    If Anita sells the house under a contract that is settled on 1 June 2022 and it is her main residence until that time, she would obtain a 60% exemption – because it would have been her main residence for six years (1 June 2016 – 1 June 2022) out of the 10 years after she is taken to have acquired it.

    End of example

    Choices made under the CGT main residence rules

    In certain circumstances, you may choose to treat a dwelling as your main residence for a period even though you no longer live in it or you are yet to live in it.

    Such choices are not required to be made by a transferor spouse where rollover applies, because the capital gain or capital loss is disregarded. However, there is nothing to prevent the transferor spouse making a choice - for example, as part of the negotiations with the transferee spouse and transferee spouse’s advisers about the transfer of a dwelling or an interest in a dwelling.

    If there was a period when the transferor spouse and transferee spouse had different main residences before they separated, they need to choose to:

    • treat one of the dwellings as the main residence of both of them for the period, or
    • nominate the different dwellings as their main residences (and obtain a part exemption on both).

    Choices relating to the main residence exemption generally need to be made by the day the person lodges their tax return for the income year they transfer or enter into the contract to sell the dwelling (or their interest in it) or another CGT event happens to it. In most cases, the way in which the tax return is prepared is sufficient evidence of that choice.

    For the practical reasons of negotiating a property settlement, any choices the transferor spouse decides to make would generally be expected to be made before they transfer the dwelling (or their interest in it) to the transferee spouse.

    A signed statement could be provided by the transferor spouse to the transferee spouse at the time of the property settlement as evidence of the making of a choice. Such a statement would be evidence that the transferee spouse could use to support the calculation of any capital gain or capital loss they make when the dwelling is later disposed of or another CGT event happens to the dwelling.

    The ATO has authority in appropriate cases to allow further time for a choice to be made after the time it is required to be made under the law.

    Once a choice is made, it is binding and cannot be changed.

    Example: Choice made by transferor spouse to treat dwelling as their main residence

    At the time of negotiating their property settlement on the breakdown of their marriage in 2016, Calvin and Denise discuss with their advisers how to divide their joint assets.

    When she was single, Denise bought a townhouse under a contract that was settled on 1 August 1998. She lived in it for three years.

    On 14 August 2001, Denise and Calvin rented a flat and started living together as husband and wife. At that time, Denise began renting out her townhouse. After living together for two years in the flat, Denise and Calvin bought a house. They moved in on 25 September 2003, the date of settlement of the purchase contract.

    Denise continued to rent out the townhouse.

    In 2016, their relationship broke down. Denise and Calvin decided that Calvin would transfer his half share in the house to Denise (where she and their daughter would continue to live) and she would transfer the townhouse to Calvin (for him to live in) under a binding financial agreement.

    Because the townhouse had been Denise’s main residence, she could choose to continue to treat it as such for up to six years of any period of absence.

    In negotiating their binding financial agreement, Denise provided Calvin with a signed statement which indicated she had chosen to treat the townhouse as her main residence for the two years between the time she moved out and the time they bought the house together.

    Because the ‘home first used to produce income’ rule applies, Calvin is taken to have acquired the townhouse for its market value on 14 August 2001 and will qualify for partial main residence exemption when he sells it (the period from 1998 to 2001 is ignored from their combined period of ownership).

    The effect of Denise’s choice is that the townhouse is exempt from CGT for the period between 14 August 2001 (when she moved out) and 25 September 2003 (when she and Calvin bought the house together). So when Calvin sells it, he will get an exemption for that period as well as for the period he lived in it after the marriage broke down.

    If Denise had not made the choice, Calvin would not get the exemption for the period from 14 August 2001 to 25 September 2003.

    End of example

    Dwellings transferred from a company or the trustee of a trust after marriage or relationship breakdown

    If a dwelling (or an interest in a dwelling) is transferred to you from a company or trustee of a trust, and marriage or relationship breakdown rollover applies to the transfer, you are treated as having owned the dwelling while it was owned by the company or trustee. However, you cannot get the main residence exemption during any part of the period the company or trustee owned it (even if you lived in the dwelling during that time).

    Therefore, if a dwelling is transferred to you by a company or trustee as a result of your marriage or relationship breakdown, you will be entitled to the exemption only for the period after it was transferred when it was your main residence. You work out the proportion of your capital gain or capital loss that is exempt by dividing the period after the transfer that it was your main residence by the combined period you and the company or trustee owned it.

      Last modified: 21 Jun 2016QC 17205