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Refresher: The Main Residence CGT Exemption

When it comes to an important moment in your life like selling your family home, the last thing you want is to be slugged with an unnecessary tax liability. Capital Gains Tax (CGT) is something that we’ve covered at length in a few previous articles (see here and here); but today we’ll dig a little deeper into the CGT Main Residence Exemption (MRE), how different situations and circumstances impact your eligibility for the exemption, and how good decision-making across the long-term can help you secure a full or partial exemption.

Recap – What is CGT?

Before we dive into the MRE, let’s first have a refresh of CGT itself. Capital Gains Tax is a tax liability that applies upon disposing of an asset. When a CGT event is triggered, it comes under your income tax for that financial year (unless you qualify for a full or partial exemption). Common assets that may attract CGT include real estate, shares and other similar investments, cryptocurrency (e.g. Bitcoin), and collectables. Personal effects sold for under $10,000 are generally not subject to CGT.

Recap – What is the CGT Main Residence Exemption?

The Main Residence Exemption can come into play when a home is sold after having been lived in as the seller’s primary place of residence. When the property in question is sold, any capital gain or loss is disregarded – meaning you won’t be charged CGT for a capital gain, but you also cannot offset any capital loss against future capital gains. Generally, a dwelling is considered to be your main residence if:

  • You & your family live in it;
  • Your personal belongings are stored in it;
  • It’s the address your mail is delivered to;
  • It’s your address on the electoral roll; and/or
  • Services are connected e.g. gas & power.

Treating a Dwelling as Your Main Residence After You Move Out to Qualify for the Exemption

Broadly speaking, a dwelling ceases to be your main residence when you stop living in it. However, there are some rules and exceptions in place which allow you to treat your former home as your main residence even after you vacate. Under most circumstances, you can treat the dwelling as your main residence indefinitely if it is not used to produce income after you move out; or up to six years if it is used to produce income (e.g. as a rental property or a place of business). It is important to remember that you cannot treat two properties as your main residence concurrently (except for up to six months while you move into a different home). An example of treating a dwelling as a min residence after you move out is as follows.

Gary owns a house in Perth where he has lived for six and a half years with his family and it has been their main residence throughout that period. Gary’s employer then transfers him to the UK for three years on a work assignment, and his family goes with him. Before he leaves for the UK, Gary disconnects his utilities, redirects his mail to the new UK address, updates government departments (including the electoral roll) with his new address, and puts his family’s personal belongings in storage. For this period, Gary’s house could technically be considered not his main residence, however depending on his future circumstances he may choose to treat it as such when it comes time to sell, so he doesn’t incur an unnecessary CGT bill. This is possible by virtue of the fact that he hasn’t treated any other dwellings as a main residence, and it wasn’t used for income-producing purposes while they lived overseas.

How MP+ Can Help

There are many situations that may arise when it comes to moving out of a main residence, selling the family home, and other CGT-related events. It is important to seek advice sooner rather than later, which is where the accounting and property teams at McKinley Plowman can assist. Our experience in helping clients navigate the muddy waters of tax in Australia is unparalleled. Give us a call today on 08 9301 2200 (Joondalup) or 08 9361 3300 (Victoria Park), or contact us via our website.

Further Reading: ATO Website

written by:

Alex joined McKinley Plowman in mid-2020 as a Business Services Manager, building on her Bachelor of Commerce degree and CA qualification, as well as over fourteen years' experience in accounting and tax. Alex enjoys working alongside clients to start up and grow their businesses, looking after them all the way from business plans and structure formations, through to growing businesses and maximising value. Her clients appreciate her ability to assist them in understanding their numbers and developing a clear picture of what their business means to them.

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