The concept of the main residence exemption suggests that your family home is exempt from capital gains tax (CGT) when you sell it. However, like most tax regulations, the reality is more complex. As Darryl Kerrigan famously said in The Castle, “it’s not a house. It’s a home,” and the Australian Taxation Office (ATO) views a main residence in a similarly nuanced way.
What Constitutes a Main Residence?
To qualify as your main residence, a home generally needs to meet several criteria:
The length of time you live in the home is significant but not definitive. Intention often takes precedence over time spent there, as each situation is unique.
Full Main Residence Exemption
If you are an Australian resident for tax purposes, you can claim the full main residence exemption when you sell your home if:
Partial Exemption
If you have used your home to generate income, you might still be eligible for a partial exemption. Common scenarios impacting the main residence exemption include:
From July 1, 2023, platforms like Airbnb must report transactions to the ATO every six months. This data will be matched against reported income on tax returns, so it is essential to ensure accurate reporting.
Foreign Residents and Changing Residency
Foreign residents cannot access the main residence exemption, even if they were residents for part of the ownership period. However, if you are a resident at the time of sale and meet other eligibility criteria, you may be able to claim the exemption, even if you were a non-resident for some of the ownership period. Australia’s tax residency rules can be intricate, so consulting with an accountant is advisable to navigate these complexities.
Applying the Absence Rule
The ‘absence rule’ allows you to treat your home as your main residence for tax purposes under specific conditions:
This rule prevents applying the main residence exemption to another property you own during the same period. For example, if you rented out your home while living overseas and later moved back in before selling it, you could still claim the full main residence exemption if you meet the criteria and were a resident for tax purposes at the time of sale.
Timing and the Main Residence Exemption
Your home qualifies as your main residence from the point you move in. If you move in promptly after settlement, it is considered your main residence from the acquisition time. If you buy a new home but have not sold your old home, both properties can be treated as your main residence for up to six months without affecting eligibility for the exemption, provided certain conditions are met.
Special Circumstances and Exceptions
If unforeseen circumstances, such as hospitalisation or an overseas posting, delay your move into a new home, you might still access the main residence exemption if you move in as soon as practicable. However, inconvenience alone is not a valid reason.
Couples and Main Residence Exemption
If you and your spouse each own homes, you cannot claim the full CGT exemption on both properties. Instead, you can choose one dwelling as the main residence for both or nominate different dwellings, splitting the exemption period.
Divorce and the Main Residence Exemption
In a divorce, if the home is transferred between spouses (not involving a trust or company) and both used it as their main residence, a full main residence exemption should be available when eventually sold. If the home qualified for only part of the ownership period, a partial exemption might apply.
Navigating the main residence exemption can quickly become complex. For tailored advice, especially for those managing business accounts or needing assistance with accountant tax matters, consulting a professional is essential. For those on the Gold Coast, an accountant can provide specific guidance tailored to your situation.
