Thanks for the responses. I rang the ATO today and got the official word.

There are 2 options.

#1. Elect for the WA property to remain the main residence up until I sell it, CGT free for 6 years after moving out. But then the other house wont be my main residence and I'd be up for CGT for the appreciation between when I bought it in Jan 07 to when I sell the WA house.

#2. Get the WA house retrospectively valued for Jan 07 (when I bought the other house) as it put on the vast majority of the appreciation before this date. Then pay CGT on the difference between the valuation in Jan 07 and what it is sold for (minus selling expenses). Then the east coast house I bought in Jan 07 become my main residence and is not subject to CGT for 6 years after I move out. This is the preferred option as the WA house was valued at $500,000 in Jan 07 (approx the selling price in Jan 11), and the other house has appreciated by about $80,000 since I bought it (which which will be CGT free).

The ATO was actually very helpful and it was worth the 30mins on hold to get it sorted. As retrospective valuations can be a little complex it worth getting your house valued when you move out if you plan to keep it and buy another house. This will allow constant reevaluation of your financial position and not get any nasty CGT bills when you go to sell…