Tax Q&A: What is the minimum period for a dwelling to become your main residence?

06/12/2018

Question: We bought a property in 2008 in Sydney and lived in it straight away for two years. Then we were called overseas for work and rented out our place for seven years (so we were one year over the six-year CGT exemption mark).

We want to come back and live in the property for a little while to reset the six-year threshold and then rent it out again. What is the minimum period in order to reset this threshold? It would be devastating to find out when we want to sell that we didn’t live in the property long enough and have missed out on the exemption.

Also, to calculate the CGT, do we use the original buying price or the market value of the property at the moment we started renting it out? We did not officially reassess the value of our apartment when we went overseas, but we rented it out four years after buying so the market value would have increased.

Thanks, Marianne

Answer: Unfortunately, there is no legislated minimum length of time that you need to live in a dwelling for it to qualify as your main residence.

Instead, whether a dwelling becomes your main residence depends on your individual circumstances. Some factors the ATO considers relevant include:

• length of time you live there
• whether your family lives there
• whether you have moved your belongings into the home
• address to which mail is delivered
• address on the electoral roll
• connection of services
• intention in occupying the dwelling

For example, in ATO Private Ruling No. 1013035228582 the taxpayer was able to establish a dwelling as a main residence after living there for three months. However, the ATO also took into account that, during that time, the taxpayer moved in their personal belongings, recorded the address of the property as the taxpayer’s address on the electoral role, had their mail delivered there, and had all services to the property connected in their name.

"There is no legislated minimum length of time that you need to live in a dwelling for it to qualify as your main residence"

Since length of time is only one factor the ATO takes into account, one taxpayer might be able to establish a main residence after living in a dwelling for only three months (as in the above example), but another taxpayer who has lived in their dwelling for the same amount of time might not be so lucky.

You should therefore consult a registered tax agent, who should be able to provide you with more detailed advice after taking into account your individual circumstances. Alternatively, you could apply for a Private Binding Ruling from the ATO once you are back in Australia. Regarding your second question, you will need to calculate your capital gain using the market value of the property at the time you started renting it out. You can choose to obtain a valuation from a qualified valuer, or compute your own valuation based on reasonably objective and supportable data. A valuer should be able to provide a ‘point in time’ valuation that may be more reliable and less likely to be challenged by the ATO than an individual valuation.

Note that new legislation is before Parliament to abolish the main residence exemption for non-residents. Australian citizens can be non-residents in some cases, for example when they live or work overseas. You should obtain advice on whether this measure will impact you.

Need to know

- Individual circumstances determine whether a property is your main residence.

- A taxpayer can apply to the ATO for a Private Binding Ruling on how the law applies in their situation.

- It is best to have a qualified valuer conduct a valuation.

Jessica Pengelly

is Senior Associate at

Finlaysons Lawyers