Tax Q&A: Am I eligible for the CGT exemption?

01/11/2018

Question: I bought and lived in a property in Melbourne in 2009. I then moved to Sydney and rented a unit, while I rented out my house in Melbourne from 2013 to November 2017.

The tenant in the Melbourne property moved out in November 2017, and I sold it in December 2017.

Am I eligible for the CGT exemption? Did I have to physically move back into the house in Melbourne at the time of sale? I have received conflicting views.  At the moment, I have no other property.

Regards, Albert

Answer: As a refresher on the background of capital gains tax exemption rules, your main residence (yourhome) is generally exempt from capital gains tax. Full exemption is received if you move in immediately on settlement and the property has a dwelling on it. You must also occupy and live in the property as your home.

You can treat land as your main residence for up to four years before the dwelling becomes your main residence if you move into the dwelling as soon as practicable after completion of construction and then continue to use it as your main residence for at least three months.

A dwelling is no longer your main residence once you stop living in it. However, you can choose to continue treating a dwelling as your main residence for capital gains tax purposes even if you no longer live in it.

Generally, you can treat the dwelling as your main residence for up to six years if it is used to produce income, or indefinitely if it is not used to produce income. You can’t treat any other dwelling as your main residence during that period (except for a limited time if you’re moving house). You can’t make this choice for a period before a dwelling first becomes your main residence.

In the event that you have multiple properties, you make the choice of which dwelling will be your main residence when you prepare your tax return for the income year in which a capital gains tax event happens to the dwelling. The best tax outcome is then chosen from among these options.

With this in mind, as you own no other property you do not have to choose your main residence from among different properties. While you moved out to Sydney in 2013, this means you can retain the main residence exemption status on the Melbourne property during your absence between 2013 and 2017, as you do not have another dwelling as your home – you were merely a tenant in the Sydney unit over that period.

"As you moved into your Melbourne property on purchase in 2009, you will have access to the six year absence rule for the period when you rented it out to generate income in 2013."

You do not have to move back in before a sale to receive the main residence exemption under the six-year rule. In fact, moving back in creates a new starting point in the calculation of capital gains tax and therefore restarts a new six-year period for exemption.

Need to know

- A property can still be your main residence even when rented out.

- There’s no need to move back into a property to claim CGT exemption.

- A property becomes your main residence only if you move in upon purchase.

Ken Raiss is director of

Metropole Wealth Advisory