Capital gains
Main residence exemption
The main residence exemption disregards a capital gain or loss on the home you live in, provided it was your main residence for the whole time you owned it and the land is within size limits.
The main residence exemption is the best-known concession in the capital gains tax system. When you sell a dwelling that has been your main residence for the entire period you owned it, any capital gain or capital loss is ignored. The gain does not appear in your tax return, and a loss cannot be claimed either.
To qualify in full, the dwelling must have been your home from the time you acquired it to the time of sale, and it generally must not have been used to produce income. The exemption normally covers the land under and around the house up to two hectares, as long as the land is used mainly for private or domestic purposes. If your property is bigger than that, the gain on the excess land may be taxable.
You can only have one main residence at a time, except for a short period when you are changing homes. A couple generally has one main residence between them, unless they genuinely live apart. Choosing which property is your main residence matters when you own more than one, and the choice should reflect where you actually live rather than where it gives the best tax result.
Partial exemptions are possible. If you rent out part of your home, run a business from it in a way that makes part of the home your place of business, or leave it vacant while buying elsewhere, the exemption may apply only for part of the ownership period or part of the property. There is also a rule that lets you treat a former home as your main residence for a time after moving out, with a limit of six years if it is rented out and no limit if it is not producing income, as long as you do not nominate another home in that time.
Foreign residents have been restricted from claiming the exemption in most cases for sales made after a particular date, so anyone who is living overseas should check their situation with care. Newly built homes and land on which you intend to build have their own timing rules, including a requirement that you move in within a set time after the dwelling is ready for occupation.
There is a GST angle too. Selling an existing residential home is generally an input-taxed supply and the owner does not charge GST, which is separate from the CGT exemption. Selling new residential premises can attract GST. Keep records of when you moved in and out, and of any period of rental use. This is general information only, so confirm your position with the ATO or a registered tax professional before selling.
Worked example
Ben buys a home for $650,000 and lives in it for the full 8 years he owns it, then sells for $910,000. Because it was his main residence throughout, the $260,000 difference is disregarded for CGT, and nothing is added to his assessable income. If he had rented it out for half of those 8 years without the absence rule applying, only part of the gain would be exempt.
Practical tips
- Keep records of when you moved in, moved out and any period of rental, since these determine how much of the exemption applies.
- Check land size before assuming the whole property is exempt, because land beyond two hectares may be taxable.
- Get advice before moving overseas, since foreign residency can remove the exemption in many cases.