Cap­ital Gains Tax & Main Res­id­ence Exemption

There has been a lot of talk and inform­a­tion regard­ing Cap­ital Gains Tax (CGT) and your main res­id­ence. 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.

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