You can generally claim the main residence exemption from CGT for your home. To get the exemption, the property must have a dwelling on it and you must have lived in it. You're not entitled to the exemption for a vacant block.
Generally, a dwelling is considered to be your main residence if:
- you and your family live in it
- your personal belongings are in it
- it is the address your mail is delivered to
- it is your address on the electoral roll, and
- services such as phone, gas and power are connected.
The main residence exemption is not based on one factor alone, and the weight given to each varies depending on individual circumstances. The length of time you stay there and your intention in occupying it may also be relevant.
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You're likely to be eligible for a full main residence exemption if the dwelling:
- has been the family home for you, your partner and other dependants for the whole period you have owned it (ownership period)
- has not been used to produce assessable income – that is, you've not run a business from it or rented it out, and
- is on land of two hectares or less.
If the exemption applies your capital gain or capital loss is disregarded – you don’t pay tax on any capital gain, but nor can you use the capital loss to reduce your assessable income.
You may be eligible for a partial main residence exemption if:
- the dwelling was your main residence for only part of the period you owned it
- your partner or dependants have separate homes
- you've used part of the property (either the dwelling or the land) to produce assessable income, or
- the land is more than two hectares.
If you're eligible for partial exemption, part of the capital gain or capital loss you make is ignored for tax purposes.
Main residence you don’t occupy
As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for CGT purposes even though you no longer live in it. (You can't make this choice for the period before a dwelling first becomes your main residence.)
More than one property
Usually you're only entitled to the main residence exemption on one property for any particular period.
If for a period you have two homes that could be regarded as your main residence – such as when
you buy a new home while retaining ownership of your existing home beyond a period of six months (see below) – you must choose one of the homes for this exemption and CGT will apply to the other property. (You don’t have to make the choice until you sell one of the homes.)
Moving from one main residence to another
If you acquire a new home before you dispose of your old one, both dwellings are treated as your main residence for an overlap period of up to six months if:
- you lived in your old home and it was your main residence for a continuous period of at least three months in the 12 months before you disposed of it
- you didn't use it to produce assessable income (such as rent) in any part of that last 12 months when it was not your new main residence, and
- the new dwelling becomes your main residence.
Selling a home you inherited
If you inherit a house that was the main residence of the person who left it to you, any capital gain on its subsequent disposal may be exempt.
Selling or giving property for less than market value
If you give a property to family or friends, or sell it to them for less than market value, and you're entitled to the main residence exemption, it will still apply.
However, if you're not entitled to the main residence exemption for the property – or you're entitled to only a partial exemption – CGT will apply. Even if you receive nothing for your property, you are taken to have received its market value at the time you disposed of it.
This means you would have to pay capital gains tax on any capital gain for the part of the property that was not exempt.
You may also be taken to have received the market value if:
- what you actually received (your capital proceeds) was more or less than the market value of the property, and
- you and the new owner were not dealing with each other at arm's length.
You should obtain a valuation from a professional valuer, or work out the market value yourself using reasonably objective and supportable data. This can include the price paid for very similar property that was sold at the same time in the same location.
- Transferring real estate to family or friends
Last modified: 10 Jun 2015 QC 22168