Personal Income Tax

Getting CGT Exemption On Two Homes - Temporarily

Capital Gains Tax (CGT) is the tax that you pay on profits from an investment. Many people encounter the CGT rules in relation to property, but it doesn't apply to your main residence. In other words, you can make as much money as you like on the sale of your main residence, and you will pay no tax on that profit. In general, you are only allowed one main residence - that makes sense, or else everyone would try to avoid paying tax by declaring multiple properties as their main residence. However, there is one exception to this that allows you to get CGT-free status on two homes, albeit for a relatively short period of time.

Defining A Main Residence

It is important to firstly define what a main residence is. For many people this will be straightforward - it is the home that you own and in which you and your family live. Other factors that are considered by the Australian Tax Office (ATO) when determining whether or not a property is a main residence include whether there is a building on it (you cannot claim a vacant block of land as your main residence), whether your personal belongings are inside it, whether you get your mail delivered to that address, whether you are on the electoral roll at that address, and whether services are connected - gas, phone, power etc.

The length of time that you have lived in the property is also relevant in some circumstances.

Some other rules and exemptions apply to CGT exemptions on your main residence, but in general it can only apply to one property. The exception to this rule is during a specific situation when you are buying and selling.

Getting CGT On Two Homes

This is often referred to as the six-month rule because it only applies for six months. It is a situation that arises when you buy a new home, but have not sold your previous home yet. You now own two homes, so which one should be regarded as your main residence in order to get CGT-free status? The answer is that the tax authorities regard both homes as your main residence for a period of six months, so you can be CGT exempt on both homes for that period of time.

The rule is in place primarily to give you time to sell the old property. To qualify for this exemption you have to meet the following criteria:

  • The new property you have bought has to become your main residence. Therefore, you cannot use this as a way of buying and selling a property with no intention of making the new property your main residence.
  • You must have lived in your old home for a period of three months continuously within the past year.
  • You cannot have used the old property to generate an income in any way over the previous 12 months.

As long as you meet these criteria, the six-month grace period gives you a small window in which to sell your old home and still keep the benefits of the main residence CGT exemption.




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