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When is a home exempt from CGT

11CGT home exemption
CGT home exemption

Your home can be exempt from CGT providing it is your castle. You need to do a few things to make sure it meets the ATO

The ATO considers several factors when determining if a dwelling is considered a client’s main residence. Various tests in relation to different factors to determine to see if you meet this test as your home. This may vary depending on the circumstances and it may be several factors.

What makes a home regarded as your home and makes your home exempt from CGT?

The main residence test for a dwelling is based on facts and takes into factors such as:

▪ whether they / their family live there

▪ how long they have lived there

▪ their intention to occupy the dwelling

▪ is the mail delivered to your home?

▪ are your personal belongings there ie have you physically moved in

▪ is it your house address officially on the electoral roll,

 ▪ whether they have connected utilities such as electricity and gas etc

If you acquire a dwelling and move in ‘as soon as practicable, it will be treated as your main residence from the acquisition date.

Change of circumstances

Of course, if your circumstances change, you may nominate another dwelling or take advantage of the six-year absence rule in relation to your existing home. This can continue to make home exempt from CGT.

Many people often purchase a house move in and then find after several months that the mortgage repayments are impacted due to a change of circumstances. They rent out the property and then wonder if they will then have to pay CGT on their home?

The good news in certain circumstances your house will still remain exempt

To make sure you meet the six-year rule you need to ensure it is your main residence before it was used to produce assessable income; and that you haven’t nominated another property as your main residence for the same time period. 

After establishing the property as your main residence, it is possible to move out and rent the property out for up to six years.   

Per the ATO (summary)

Your property stops being your main residence when you stop living in it.

However, for CGT purposes you can continue treating the property as your main residence:

  • for up to 6 years if it is used to produce income, such as rent (sometimes called the ‘six-year rule’)
  • indefinitely if it is not used to produce income.

During the time that you treat the property as your main residence:

  • Your home continues to be exempt from CGT to the same extent that it was exempt when you stopped living in it, even if you start renting it out after you leave
  • you cannot treat any other property as your main residence (except for up to 6 months if you are moving house).
  • If you do not use your former home to produce income (for example, you leave it vacant or use it as a holiday house) you can treat it as your main residence for an unlimited period after you stop living in it.

The good news is if you move back into your home and then down the track you move back out the six-year rule is reset, and the exemption applies for another six years. Of course, if you only have one home and you leave it empty or for the kids to use it then as long as it does not earn an income it remains exempt indefinitely.

However, if you acquire a new home then the above exemption ceases. Make sure if you are renting your property out then please don’t hesitate to contact us and discuss your circumstances. We welcome you to contact us if you need some advice phone 95979966

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