Moving into a dwelling
A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time. If you purchased the dwelling, this would generally be the date of settlement of the purchase contract.
However, if there is a delay in moving in because of illness or other unforeseen circumstances and you move into the dwelling as soon as the cause of the delay is removed – for example, you recover from the illness – the exemption may still be available from the time you acquired your ownership interest in the dwelling.
If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest.
A special rule allows you to treat more than one dwelling as your main residence for a limited time if you are changing main residences.
Example - Moving in as soon as practicable
Mary signed a contract to buy a townhouse in March. She took possession when settlement occurred in April.
During this period, Mary was directed by her employer to go overseas on an assignment for four months, leaving late in March. Mary moved into the townhouse on her return to Australia in late July.
Mary's overseas assignment was unforeseen at the time of purchasing the property. As she moved in as soon as practicable after settlement of the contract occurred, Mary can treat the townhouse as her main residence from the date of settlement until she moved in.
If Mary treats the townhouse as her main residence for this period, she cannot treat any other dwelling as her main residence (except maybe for a limited time – see Moving house).
End of example
If you acquire a new home before you dispose of your old one, both dwellings are treated as your main residence for up to six months if:
- the old dwelling was your main residence for a continuous period of at least three months in the 12 months before you disposed of it
- you did not use it to produce assessable income in any part of that 12 months when it was not your main residence
- the new dwelling becomes your main residence.
If you dispose of the old dwelling within six months of acquiring the new one, both dwellings are exempt for the whole period between when you acquire the new one and dispose of the old one.
Example - Exemption for both homes
Jill and Norman bought their new home under a contract that was settled in January and they moved in immediately. They sold their old home under a contract that was settled in April. Both the old and new homes are treated as their main residence for the period January to April, even though they did not live in the old home during that period.
End of example
If it takes longer than six months to dispose of your old home, both homes are exempt only for the last six months before you dispose of the old one. If you decide to claim the main residence exemption for your new home from the time you first move in, then you obtain only a partial exemption when a capital gains tax (CGT) event happens in relation to your old home.
Example - Partial exemption for old home
Jeneen and John bought their home under a contract that was settled on 1 January 1999 and they moved in immediately. It was their main residence until they bought another home under a contract that was entered into on 2 November 2015 and settled on 1 January 2016.
They retained their old home after moving into the new one on 1 January 2016, but did not use the old one to produce income. They sold the old home under a contract that was settled on 1 October 2016. They owned this home for a total period of 6,484 days.
Both homes are treated as their main residence for the period 1 April 2016 to 1 October 2016, the last six months that Jeneen and John owned their old home. Therefore, their old home is treated as their main residence only for the period before settlement of their new home and during the last six months before settlement of the sale of the old home.
The 91 days from 1 January 2016 to 31 March 2016, when the old home was not their main residence, are taken into account in calculating the proportion of their capital gain that is taxable (91 ÷ 6,484). Because they entered into the contract to acquire their old home before 11.45am (by legal time in the ACT) on 21 September 1999 and entered into the contract to sell it after they had held it for at least 12 months, Jeneen and John can use either the indexation or the discount method to calculate their capital gain.
End of example
If it takes longer than six months to dispose of your old home, you may get an exemption for the old home for the period in excess of the six months by choosing to treat it as your main residence for that period under the ‘continuing main residence status after dwelling ceases to be your main residence’ rule. If you do this, you get only a partial exemption when you dispose of your new home.
Example - Partial exemption for new home
The facts are the same as in the previous example, except that Jeneen and John choose to continue to treat their old home as their main residence for the period from 1 January 2016 to 31 March 2016 under the 'continuing main residence status after dwelling ceases to be your main residence' rule.
This means they get a full exemption when they sell it.
Because both homes can only be exempt for a maximum of six months when you are moving from one to the other, Jeneen and John will not get a full exemption for their new home when they sell it. The exemption would not be available for the new home for the 91 days from 1 January 2016 to 31 March 2016.
End of example
Work it out:
For help applying this to your own situation, phone 13 28 61.
When you move into a dwelling, you may be able to treat it as your main residence (your home) for capital gains tax purposes. Work out the date on which a dwelling becomes your main residence.