The main residence exemption is a wonderful tax break that allows you to sell your family home without paying capital gains tax (CGT). However, like most things in tax, it’s not always straightforward. Here’s our step-by-step guide to understanding when this exemption applies and what you need to watch out for.

What Counts as Your Main Residence?

The Australian Taxation Office (ATO) has specific criteria to determine if a property is your main residence. Your home is generally considered your main residence if:

  • It’s where you and your family live
  • Your personal belongings are there
  • It’s where you get your mail
  • It’s your address on the electoral roll
  • Services like phone, gas, and electricity are in your name
  • You intend for it to be your main residence

While the amount of time you spend living there is important, your intention to make it your main residence plays a big role.

When Does the Main Residence Exemption Apply?

CGT usually applies when you sell a home unless you qualify for an exemption or partial exemption, or can offset the tax with a capital loss.

You can get the full exemption if:

  • Your home was your main residence the entire time you owned it
  • You didn’t use the home to produce income (e.g., running a business from it)
  • The land is 2 hectares or less

Partial Exemption

If you’ve used your home to earn income, like renting out a room or running a business, you might not get the full exemption but could qualify for a partial one.

Note that from 1 July 2023, platforms like Airbnb must report transactions to the ATO, which will check them against your tax return.

Foreign Residents and Changing Residency

Foreign residents can’t access the main residence exemption. If you sell your home while you’re a non-resident, you won’t get the exemption. However, if you sell it as a resident after being a non-resident for part of the ownership period, you might still qualify for the exemption.

Can the Main Residence Exemption Apply If You Move Out?

Yes, thanks to the ‘absence rule’:

  • You can treat your home as your main residence for up to 6 years if you rent it out, or indefinitely if it’s not used to produce income.
  • This rule means you can’t apply the exemption to another property during the same period, except in limited circumstances.

Timing

Your home generally qualifies as your main residence from when you move in.

If you buy a new home but haven’t sold your old one, you can treat both as your main residence for up to six months. Beyond that, you might have to choose which one gets the exemption.

Can a Couple Have Separate Main Residences?

No, you and your spouse can’t each claim the full CGT exemption on different homes. You must either choose one home as your joint main residence or split the exemption based on ownership percentages.

What Happens in a Divorce?

If the home is transferred to one spouse as part of the settlement, and it was their main residence, they should still qualify for the full exemption. If only part of the ownership period qualifies, a partial exemption may apply.

The Bottom Line

The main residence exemption can save you a lot of money, but it’s crucial to understand the rules—it’s tax law. If you’re unsure, it’s wise to seek professional advice.

Feel free to reach out to us for more detailed guidance tailored to your situation.