Working From Home – Main Residence CGT Exemption
Selling the family home may trigger a capital gains tax liability depending on whether a full or partial main residence exemption applies.
CGT will not normally apply to any assets purchased or inherited before the 20thSeptember 1985. Factors which may affect the CGT implications for the main residence exemption include:
- There was a delay before moving in
- The dwelling was used to produce income
- There was a change of main residence during the ownership period
- The owner was a non-resident for tax purposes
The full main residence exemption applies if all the following applies:
- the owner is an individual
- they reside in the dwelling for the full ownership period
- the dwelling has not been used to produce assessable income (eg used in a business)
- the dwelling is situated on land that does not exceed two hectares.
- the owner is not an excluded foreign resident
A dwelling will be considered to be the main residence depending on the factors in each case which include, whether you live there, intention to occupy, mail delivery, personal belongings kept there, listed on electoral roll and connection to utilities.
If you don’t move in at the first available opportunity, then the dwelling can not be treated as the main residence from the date of acquisition and a partial exemption may apply. If the reason for not occupying is due to unforeseen circumstances, such as illness or work-related assignments, the dwelling may still be treated as the main residence. However if the reason is due to a pre-existing rental arrangement the dwelling will not be eligible for the full exemption.
If you moveout of the dwelling , but do not rent it, the dwelling can still be your main residence provided you do not nominate another main residence. The nomination is at the time of sale of either the residence or another nominated residence. If the residence is rented then you can be absent for up to six years and still treat the dwelling as the main residence.
There is a special rule where the dwelling is first used to produce assessable income. You are deemed to have sold the dwelling at that time and to have repurchased it at market value. It is only any future gains that may be taxable.
The dwelling plus up to two hectares can be included in the main residence exemption. Where the adjacent land is more than two hectares the owner can nominate which two hectares are included with the dwelling in the main residence exemption.
