Are you a home owner? Then you may be familiar with or heard about the main residence exemption rule.
Main residence exemption is a concessional capital gains tax (CGT) treatment for the sale of a home.
You should be aware of this rule or contact us if you require any clarification or advice about Capital Gains Tax and main residence exemption.
Capital Gains Tax treatment on sale of home and Main Residence Exemption Rule
The sale of a taxpayer’s home may be partly or entirely exempt from CGT if it is treated as their main residence or ‘Principal Place of Residence’ (PPOR).
A dwelling can generally be treated as a main residence if the taxpayer lives in it. Generally no more than one dwelling or residential property can be treated as a main residence at the same time.
Taxpayers with multiple residential properties may only treat one of those as their main residence or PPOR for tax purposes.
A property can still be treated as a taxpayer’s main residence if:
- It is left vacant; or
- The six-year rule is met.
“The Six-year Rule”
Under the six-year rule, a property may still be treated as a taxpayer’s main residence if it is used to produce income, such as rent, for a period less than 6 years for each period during the taxpayer’s absence.
Upon the sale of a main residence dwelling, CGT may apply to the income-producing period in excess of 6 years.
If you use the dwelling to generate income (such as for example, rent it out) you can choose to treat it as your PPOR or main residence for up to six years after you cease 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.
Your main residence (your home) is generally exempt from CGT.
However, you cannot usually obtain the full main residence exemption if you:
- Acquired your home on or after 20 September 1985 and used it as your PPOR.
- Used any part of it to produce income during all or part of the period you owned it, and
- Would be allowed a deduction for interest had you incurred it on borrowed money to purchase the property (interest deductibility test).
For more information about capital gains tax and main residence exemption rule, visit this page on the ato.gov.au website or contact your nearest property tax specialist accountant to discuss your particular circumstances in relation to main residence exemption and capital gains treatment.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.