If you have multiple residences, you can generally only claim full capital gains tax (CGT) exemption from the dwelling that you identify as your Main Residence.
How do I know what my main residence is?
Below is a list of details that may help you ascertain which dwelling is your main residence when considering capital gains tax exemption:
- the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence
- whether you and your family lives there
- whether you have moved your personal belongings into the home
- the address to which your mail is delivered
- your address on the electoral roll
- the connection of services (for example, phone, gas, electricity, internet)
- your intention in occupying the dwelling.
Any and all of these details require action in order for you to be able to claim an exemption from capital gains tax.
What is a dwelling?
You may have noticed me using the word “dwelling” earlier. Simply put, a dwelling is a anything that can be used for residential accommodation. Below is a list of examples that are considered dwellings:
- a home or cottage
- an apartment or flat
- a strata title unit
- a unit in a retirement village
- a caravan, houseboat or other mobile home.
What if a dwelling wasn’t my main residence, but now it is?
If you find yourself in a situation where a dwelling (or residential property) was not your main residence for the whole time you owned it, there are some special rules which may entitle you to a full exemption. You may also get an extension on a partial exemption you would obtain otherwise.
If a Capital Gains Tax event occurs to a dwelling you obtained on or after 20 September 1985, and that dwelling was not your main residence for the whole time you owned it, you will receive only a partial exemptions.
These rules below apply to a dwelling or land if:
- you choose to treat the dwelling as your main residence, even though you no longer live in it
- you moved into the dwelling as soon as practicable after its purchase
- you are changing main residences
- you are yet to live in the dwelling but will do so as soon as practicable after it is constructed, repaired or renovated and you will continue to live in it for at least three months
- you sell vacant land after your main residence is accidentally destroyed
part of your main residence, such as adjacent land or structures, are compulsorily acquired.
Calculating a partial exemption
The part of the capital gain that is taxable is calculated as follows:
Total capital gain made
number of days in your ownership period
So I can’t claim a dwelling that I don’t live in as my main residence?
Generally, a dwelling is not your main residence as soon as you stop residing in it. It is possible in some cases to claim a residence you no longer live in as your main residence for Capital Gains Tax purposes, even though you no longer live there.
Note: You cannot make this choice for the period before a dwelling first becomes your main residence.
When can I do this?
A decision only needs to be made for the income year that the CGT event happens to the dwelling.
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 decide for the income year you enter into the contract to sell the first of those dwellings.
If you make this choice, you assign another dwelling as your main residence for that period of time. (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 may treat the dwelling as your main residence for an unlimited period after you cease living in it.
© Fitzpatrick Group 2017
Ken Bond – Director
Ken is a certified taxation advisor and joined Fitzpatrick Group in 2006 after 31 years with one of Australia’s largest banks, where he held a variety of management positions from Branch Manager to Senior Business Banking Manager.