Main Tax Residence Exemption
By Ken Raiss
The excitement of upgrading from your first home can soon dissipate when your accountant advises that you will need to pay some tax on the sale.
You thought that the sale of your family home would be totally tax free. This article goes through the conditions when the sale will be tax free and when you need to plan for tax. Tax relief on the family home is generated under the Main Residence Exemption (MRE) and this article looks at some of the aspects (but not all) of the Main Residence Tax Exemption.
What Constitutes Main Residence?
There are many factors that will be relevant in working out whether a dwelling is your main residence for tax purposes. These include:
- Whether 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 or electricity), and
- Your reasons in occupying the dwelling.
A mere intention to construct or occupy a dwelling as your main residence – without actually doing so – is not sufficient to obtain the exemption.
Note that only up to two hectares can be claimed for MRE purposes and it is critical to sell any adjacent land with the other lot.
If there are multiple owners on title and only some of them are using the property as their family home then the MRE would be apportioned accordingly.
Importance of Moving In
You cannot claim a MRE on a dwelling you purchased unless you actually occupied it. If you purchased a property and undertook an extensive renovation and sold before moving in then normal CGT would be applied with no MRE.
Another important principle is that you must move in as soon as practicable. This would normally be after settlement. If you purchase a property that has a residential lease attached and do not move in until the lease expires, then that is not as soon a practicable. Therefore, you will only be able to use the MRE if you sell based on a proportion of days you had moved in to total days owned. If you are in hospital as an example then you are deemed to not be in a position to practicably move in.
Purchasing land to Build your Family Home
The MRE is applicable to land where the family home is going to be built, (including renovations and repairs on an existing dwelling). For the MRE to apply to land the construction must be both completed, and you must move in within four years of purchase.
The Six-Year Rule
In the event that you move out of your family home without identifying another property as your main residence for an extended period of time, there is a rule that allows you to retain the MRE for a period of up to six years even if the property is being rented out.
It is important to note that between spouses there can only be one MRE unless they are permanently separated.
Ken Raiss, Director of Chan & Naylor Platinum
For more information call 1300 250 122 or email firstname.lastname@example.org
Ken Raiss will be presenting at the Get Smart with Property 2 Day Workshop
If you intend to rely on any of the information in this document to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. This information does not take into account your individual objectives, financial situation and needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. The information contained in this document is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by Chan & Naylor, its officers, employees, directors or agents.