• Treating a dwelling as your main residence after you move out

    As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.

    Note: You cannot make this choice for the period before a dwelling first becomes your main residence.

    When you can make this choice

    This choice needs to be made only for the income year that the CGT event happens to the dwelling – for example, the year that you enter into a contract to sell it.

    If you own both:

    • the dwelling that you can choose to treat as your main residence after you no longer live in it
    • the dwelling you actually lived in during that period

    you make the choice for the income year you enter into the contract to sell the first of those dwellings.

    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).

    If you do not use it to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you cease living in it.

    Example

    Bill buys a unit and lives in it for three years. He then moves out to live with a friend, while his son occupies the unit rent free. He does not treat any other dwelling as his main residence. 12 years later, he sells the unit and claims the main residence exemption from CGT.

    End of example

    If you use the dwelling to produce income (for example, you rent it out or it is available for rent) 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.

    You can choose when you want to stop the period covered by this choice.

    See also:

    Example

    Choosing to stop the period covered by the choice early

    James bought his home in Brisbane and moved in immediately. One year later he moved to Perth and rented out his Brisbane home. Five years later James bought and moved into a new home in Perth. He sold the property in Brisbane later that year. In completing his return for that year, James decided to continue to treat the Brisbane property as his main residence after he moved out of it but only until the date he purchased his new main residence in Perth.

    End of example

    If you rent out the dwelling for more than six years, the ‘home first used to produce income’ rule may apply, which means you are taken to have acquired the dwelling at its market value at the time you first used it to produce income – see Using your home to produce income.

    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 bought a house after 20 September 1985 but stopped using it as her main residence for the 10 years immediately before she sold 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 she disregards any capital gain or capital loss she makes on the sale of the dwelling. 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. It doesn’t matter whether the period during which the home is used to produce income is a single block of six years or several shorter periods, so long as the total period it was used to produce income was no more than six years.

    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 rented it out for three years, left it vacant for two years, rented it out for the next three years, then once more left it vacant for two years.

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

    End of example

     

    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 1993
    Ian settled a contract to buy a home in Sydney on 0.9 hectares of land and used it as his main residence.

    1 January 1995
    Ian was posted, by his employer, to Brisbane and settled a contract to buy another home there.

    1 January 1995 to 31 December 1999
    Ian rented out his Sydney home during the period he was posted to Brisbane.

    31 December 1999
    Ian settled a contract to sell his Brisbane home and the tenant in his Sydney home left. Ian chose not to claim the main residence exemption on the sale of the Brisbane property, so he had to include the capital gain in his return for that year.

    The period of five years from 1995 to 1999 is the first period the Sydney home was used to produce income for the purpose of the six-year test.

    1 January 2000
    Ian was posted by his employer from Brisbane to Melbourne for three years and settled a contract to buy a home in Melbourne. He did not return to his Sydney home at this time.

    1 March 2000
    Ian again rented out his Sydney home – this time for two years.

    28 February 2002
    The tenant of his Sydney home left.

    The period of two years from 2000 to 2002 is the second period the Sydney home was used to produce income under the six-year test.

    31 December 2002
    Ian sold his home in Melbourne. Ian chose not to claim the main residence exemption on the sale of this property.

    31 December 2003
    Ian returned to his home in Sydney and it again became his main residence.

    28 February 2016
    Ian settled a contract to sell his Sydney home.

    As Ian did not claim the main residence exemption for either of his Brisbane or Melbourne homes he is able to choose to treat the Sydney home as his main residence for the period after he stopped living in it. Ian claims the exemption for this property.

    Ian cannot obtain 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 1995 to 31 December 1999 and 1 March 2000 to 28 February 2002) total 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 $250,000, the amount of the gain that is taxable is calculated as follows:

    Period of ownership of the Sydney home:

    1 July 1993 to 28 February 2016

    8,279 days

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

    1 January 1995 to 31 December 1999

    1,826 days

    1 March 2000 to 28 February 2002

        730 days

     

    2,556 days

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

    1 January 1995 to 31 December 1999

    1,826 days

    1 March 2000 to 28 February 2001

       365 days

     

    2,191 days

    Income-producing period exceeding six years after Ian ceased living in it:

    2,556 – 2,191 = 365 days

    Proportion of capital gain taxable in 2015–16

    $250,000 X

     365 
    8,279

    = $11,021

    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.

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

    End of example

    Work it out:

    See also:

    For help applying this to your own situation, phone 13 28 61.

      Last modified: 21 Jun 2016QC 17185