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  • Treating former home as main residence

    You can continue treating your former home as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.

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    Eligibility

    The property must:

    • have been your main residence first – you cannot apply the main residence exemption to a period before a property first becomes your main residence
    • have stopped being your actual main residence – that is, you stopped living in it.

    If the property was continuously your main residence, the usual rules for the main residence exemption apply. This means if you use it to produce income, such as rent, you will be entitled to only a partial main residence exemption from CGT.

    If you are a foreign resident when a CGT event happens to your residential property in Australia (for example, you sell it), you are no longer entitled to claim the main residence exemption. See Main residence exemption for foreign residents.

    How it works

    Your main residence (your home) is generally exempt from CGT.

    Usually, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence:

    • for up to 6 years if it is used to produce income, such as rent (sometimes called the 'six-year rule')
    • indefinitely if it is not used to produce income.

    During the time that you treat the property as your main residence:

    • it continues to be exempt from CGT to the same extent that it was exempt when you stopped living in it, even if you start renting it out after you leave
    • you cannot treat any other property as your main residence (except for up to 6 months if you are moving house).

    When to make the choice of main residence

    You make the choice to treat a property as your main residence when you prepare your tax return for the income year that a CGT event happens to the property – for example, the year that you sell it.

    You may own both:

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

    In this case, you make the choice in the income year you first sell one of those properties.

    Former home not used for income

    If you do not use your former home 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 home not used to produce income

    Bill bought a unit and lived in it for 3 years. He then moved out to live with a friend while his son occupied the unit rent free.

    Bill did not treat any other property as his main residence.

    Twelve years later, he sold the unit and claimed the main residence exemption from CGT.

    End of example

    Former home used for income

    If you use your former home to produce income (for example, you rent it out or make it available for rent), you can choose to treat it as your main residence for up to 6 years after you stop living in it. This is sometimes called the 'six-year rule'.

    You can choose when to stop the period covered by your choice.

    If you are absent more than once during the period you own the property, the 6-year period applies separately to each period of absence.

    Example: ending the period covered by the choice early

    James:

    • bought a house in Brisbane on 15 September 2010 and moved in immediately
    • moved to Perth on 10 October 2012 and rented out his Brisbane house
    • bought and moved into a new house in Perth on 3 October 2017
    • sold the house in Brisbane on 1 March 2019.

    When he completed his 2018–19 tax return, James decided to treat the Brisbane house as his main residence for the period after he moved out until he purchased his new main residence in Perth. This is a period of slightly less than 5 years from 10 October 2012 to 3 October 2017.

    End of example

     

    Example: dwelling used to produce income for up to 6 years

    Lisa:

    • bought and moved into a house in 2000
    • stopped living in the house in 2009
    • sold the house in 2019.

    While she lived in the house, she did not use it to produce income.

    During the 10-year period after she moved out, Lisa:

    • rented the house out for 3 years
    • left it vacant for 2 years
    • rented it out again for 3 years
    • left it vacant again for 2 years.

    The total period Lisa used the house to produce income was 6 years, which meets the 6-year limit for treating it as her main residence. It does not matter that the 6 years is broken into 2 shorter periods. While the house is vacant the period is unlimited because the house is not being used to produce income.

    Lisa can choose to treat the house as her main residence for the entire 10-year period after she stopped living in it and disregard her capital gain or loss on the sale of the house.

    End of example

     

    Example: dwelling used to produce income during multiple absences

    Jez bought and moved into a house in 2000.

    • In 2009 he had to move for work, so he stopped living in the house and rented it out for the next 5 years.
    • In 2014 he moved back into the house and treated it as his main residence for 2 years.
    • In 2016 he again moved and rented the house out, this time for 3 years.
    • In 2019 Jez sold the house.

    While Jez lived in the house, he did not use it to produce income.

    The 6-year limit applies separately to each period of absence that immediately follows a period when Jez lived in the property. Therefore, Jez can choose to treat the house as his main residence for both rental periods, and disregard his capital gain or loss on the sale of the house.

    End of example

    What happens if 6-year limit is exceeded

    If you use your former home to produce income for more than 6 years in one absence, it is subject to CGT for the period beyond the 6-year limit.

    To work out your CGT when you dispose of your home:

    • your cost base is the market value of your home at the time you first used it to produce income, plus any allowable costs since then (this is the home first used to produce income rule)
    • your capital gain or loss is based on the proportion of time, since you first used your home to produce income, that is over the 6-year limit.

    Example: former home used to produce income for more than 6 years

    Roya bought an apartment for $180,000. She immediately started living in the apartment as her main residence.

    • On 29 September 1996, Roya moved interstate and rented out the apartment. At that time the market value of the apartment was $220,000.
    • During her time interstate she did not acquire another property.
    • In July 2018 she returned to her home state. She continued to rent out the apartment.
    • She sold the apartment for $555,000 under a contract that settled on 29 September 2018.
    • She incurred $15,000 in agent’s and solicitor’s fees when she sold.
    • She has no other capital gains or losses.

    As Roya rented out the apartment, she can treat it as her main residence during her absence for a maximum of 6 years. This is the period 29 September 1996 to 29 September 2002.

    Roya must treat the apartment as though she acquired it:

    • on the date she first used it produce income (29 September 1996)
    • at the market value at that time ($220,000).

    Roya works out her CGT as follows:

    • Capital proceeds − cost base = capital gain
      $555,000 − ($220,000 + $15,000) = $320,000
    • Non-main residence days (days over 6-year limit)
      30 September 2002 to 29 September 2018 = 5,844 days
    • Ownership period days (from deemed acquisition date)
      29 September 1996 to 29 September 2018 = 8,036 days
    • Assessable capital gain
      $320,000 × (5,844 days ÷ 8,036 days) = $232,712

    She is eligible to use the 50% CGT discount to reduce her capital gain:

    • $232,712 × 50% = $116,356

    Roya reports a net capital gain of $116,356 on her 2019 tax return.

    End of example

    Former home used for income before you move out

    If you use any part of your home to produce income before you stop living in it, you cannot apply the continuing main residence exemption to that part.

    This means you cannot get the main residence exemption for that part of your home either before or after you stop living in it.

    Example: home used for income before ceasing to live in it

    Helen bought a house in 1998 and moved in immediately.

    • She used 75% of the house as her main residence and the remaining 25% as a doctor's surgery.
    • In 2010, she moved out and rented out the house.
    • She sold the house in 2016, making a capital gain of $400,000.

    Helen chooses to treat the house as her main residence for the 6 years it was rented out.

    As 25% of the house was used to produce income during the period before Helen stopped living in it, the same proportion of the capital gain is assessable:

    $400,000 × 25% = $100,000

    End of example
    Last modified: 04 Aug 2021QC 66030