Main Residence Exemption

There has been a lot of talk and information regarding Capital Gains Tax (CGT) and your main residence exemption. Basically, your main residence can be exempt if your intentions and your elections are for this property to be treated as your main residence.

You can only ever elect to have one main residence at any time. This can be a little trap for some people who purchase multiple houses or go overseas.

Firstly, you have to establish your Principal Place of Residence (PPR). This needs to be done carefully if you have multiple properties. If you only have one property that you have brought and moved into then this will become your PPR should you choose.

To establish your PPR, the ATO will look at item such as:-

• the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence.
• whether your family lives there.
• whether you have moved your personal belongings into the home.
• the address to which your mail is delivered.
• your address on the electoral roll.
• the connection of services (for example, phone, gas or electricity)
• your intention in occupying the dwelling.

Technically, if you purchase a house you would need to move into that house straight away and satisfy the above criteria to make that house CGT free. Once you have established your house as your PPR you can then move out and that house can remain your main residence and hence be CGT free when you sell it.

However, there is a catch, you can only treat it as your main residence for 6 years. Hence nearing the end of the 6 year period you would need to move back into the house and re-establish it as your main residence.

Put simply, you can only have one tax free house at any one time that has to be established as your main residence and if you move out you only have 6 years for it to continue to be your main residence.

For specific Main Residence Exemption or related circumstances, you should contact your accountant first to discuss your options.

Brad Callaughan is a specialist in taxation, accounting and business advisory. He is the managing director of Callaughan Partners that was formed to deliver and exceed client’s expectations, whilst charging upfront fees. Brad is an avid property investor and renovator. Brad is also a strong force behind the development as well as sitting on the board of the Ross Hutchinson Foundation. He can be contacted at http://www.callaughanpartners.com.au

By Steve McKnight

Steve McKnight, the founder of PropertyInvesting.com, is a respected property investing authority as well as Australia's #1 best-selling business author.