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  • 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, you can choose to continue treating a dwelling as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.

    Generally, you:

    • can treat the dwelling as your main residence for:
      • up to six years if it is used to produce income
      • indefinitely if it is not used to produce income
    • can't treat any other dwelling as your main residence for that period (except for a limited time if you're moving house).

    You can't make this choice for a period before a dwelling first becomes your main residence.

    See also:

    When to make this choice

    You make this choice when you prepare your tax return for the income year that a 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, and
    • the dwelling you actually lived in during that period

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

    Former dwelling not used to produce income

    If you don't use your former dwelling to produce income (for example, you leave it vacant, or use it as a holiday house) you can treat it as your main residence for an unlimited period after you stop living in it.

    Example: Former dwelling not used to produce income

    Bill bought a unit and lived in it for three years. He then moved out to live with a friend, while his son occupied the unit rent free. He did not treat any other dwelling as his main residence. Twelve years later, he sold the unit and claimed the main residence exemption from CGT.

    End of example

    Former dwelling used to produce income

    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 stop 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 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.

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

    If you are absent more than once during the period you own the dwelling, 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.

    If you use any part of your dwelling to produce income before you stop living in it, you can't apply the continuing main residence exemption to that part. This means you can't get the main residence exemption for that part of the dwelling either before or after you stop living in it.

    See also:

    Example: Choosing to stop the period covered by the choice early

    James bought a house in Brisbane on 15 September 2010 and moved in immediately. On 10 October 2011 he moved to Perth and rented out his Brisbane house. On 3 October 2016 James bought and moved into a new house in Perth. He sold the house in Brisbane on 1 March 2017.

    In completing his 2016–17 tax return, James decided to treat the Brisbane house as his main residence for the period after he moved out of it but only until the date he purchased his new main residence in Perth – that is, for the period of slightly less than five years from 10 October 2011 until 3 October 2016.

    End of example

     

    Example: One period of absence of 10 years

    Dwelling 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 rented it out for six years and left it vacant for four years.

    Lisa chooses to treat the house as her main residence for the period after she ceased living in it, so she disregards any capital gain or loss she made on the sale of the house. The maximum period the house 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 house is used to produce income is a single block of six years or several shorter periods, so long as the total period it is used to produce income is no more than six years.

    Because the house is fully exempt as a result of Lisa making this choice, the home first used to produce income rule does not apply.

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

    In the 10-year period after Lisa stopped living in the house she rented it out for three years, left it vacant for two years, rented it out for the next three years, and then once more left it vacant for two years.

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

    End of example

     

    Example

    Dwelling 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
      Rami settled a contract to buy an apartment in Sydney and used it as his main residence.
    • 1 January 1995
      Rami was posted to Brisbane by his employer, and settled a contract to buy a house there.
    • 1 January 1995 to 31 December 1999
      Rami rented out his Sydney apartment during the period he was posted to Brisbane.
    • 31 December 1999
      Rami settled a contract to sell his Brisbane house and the tenant in his Sydney apartment left. Rami chose not to claim the main residence exemption on the sale of the Brisbane house, so he had to include the capital gain in his return for that year.

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

    • 1 January 2000
      Rami was posted by his employer from Brisbane to Melbourne for three years and settled a contract to buy a townhouse in Melbourne. He did not return to his Sydney apartment at this time.
    • 1 March 2000
      Rami again rented out his Sydney apartment – this time for two years.
    • 28 February 2002
      The tenant of his Sydney apartment left.

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

    • 31 December 2002
      Rami sold his townhouse in Melbourne. He chose not to claim the main residence exemption on the sale of this property.
    • 31 December 2003
      Rami returned to his apartment in Sydney and it again became his main residence.
    • 28 February 2017
      Rami settled a contract to sell his Sydney apartment.

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

    Rami can't obtain the main residence exemption for the whole period of ownership of the Sydney apartment 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 apartment 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 apartment is $250,000, the amount of the gain that is assessable is calculated as follows:

    Period of ownership of the Sydney apartment:

    1 July 1993 to 28 February 2017 = 8,644 days

    Periods the Sydney apartment was used to produce income after Rami ceased living in it:

    1 January 1995 to 31 December 1999

    1,826 days

    1 March 2000 to 28 February 2002

    730 days

     Total

    2,556 days

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

    1 January 1995 to 31 December 1999

    1,826 days

    1 March 2000 to 28 February 2001

    365 days

     Total

    2,191 days

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

    2,556 − 2,191 = 365 days

    Proportion of capital gain assessable in 2016–17

    $250,000 × (365 ÷ 8,644) = $10,556

    Because Rami entered into the contract to acquire the property before 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 discount method to calculate his capital gain.

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

    End of example

    See also:

    Last modified: 17 Jul 2017QC 52189