How the CGT main residence exemption works if you move out and use the 6-year rule when renting out your former home.
Your main residence (your home) is generally exempt from CGT.
Usually, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence:
During the time that you treat the property as your main residence after you stop living in it:
The property must have:
If the property was continuously your main residence, the usual rules for the main residence exemption apply. This means if you use it to produce income, such as rent, you will be entitled to only a partial main residence exemption from CGT.
If you are a foreign resident when a CGT event happens to your residential property in Australia (for example, you sell it), you aren't entitled to claim the main residence exemption.
You choose to treat a property as your main residence in the income year a CGT event happens to the property when preparing your tax return – for example, the year you sell it based on the contract sale date, not the settlement date.
You may own both the property:
In this case, you make the choice in the income year you first sell one of those properties.
If you don't use your former home to produce income (for example, you leave it vacant or use it as a holiday house) you can treat it as your main residence for an unlimited period after you stop living in it. This only applies if you aren't treating another property at the same time as your main residence.
Bill bought a unit and lived in it for 3 years. He then moved out to live with a friend while his son occupied the unit rent free.
Bill didn't treat any other property as his main residence.
Twelve years later, he sold the unit and claimed the main residence exemption from CGT.
If you use your former home to produce income (for example, you rent it out or make it available for rent), you can choose to treat it as your main residence for up to 6 years after you stop living in it. This is sometimes called the '6-year rule'.
You can choose when to stop the period covered by your choice. For example, if you rented it out for 5 years, you can choose to treat the property as your main residence for 3 years.
If you're absent more than once when owning the property, the 6-year period applies to each period of absence. A period of absence stops when you either stop renting your home and:
James:
When he completed his 2022–23 tax return, James decided to treat the Brisbane house as his main residence for the period after he moved out in October 2014 until he purchased his new main residence in Perth in October 2019. This is a period of less than 6 years. This means James is entitled to claim a partial main residence exemption under the '6-year rule'.
As James decided not to treat the Brisbane house as his main residence after he bought the Perth house, he is subject to CGT for that period. This means James must include a capital gain or loss in the period not covered by the main residence exemption in his 2023 tax return (from October 2019 until March 2023).
Lisa:
While she lived in the house, she didn't use it to produce income.
During the 10-year period after she moved out, Lisa:
The total period Lisa used the house to produce income was 6 years, which meets the 6-year limit for treating it as her main residence. It doesn't matter if the 6 years is broken. While the house is vacant, the period is unlimited because the house is not being used to produce income.
Lisa can choose to treat the house as her main residence for the entire 10-year period after she stopped living in it and disregard her capital gain or loss on the sale of the house.
Lisa must include the CGT event in her tax return in the year of the contract sale date, even if she chooses to treat the house as her main residence for the period she stopped living in it. Lisa can claim the 'Main residence exemption' in her tax return.
Jez bought and moved into a house in 2003:
While Jez lived in the house, he did not use it to produce income.
The 6-year limit applies separately to each period of absence immediately following a period Jez lived in the property. This means Jez can choose to treat the house as his main residence for both rental periods and disregard his capital gain or loss on the sale of the house.
Jez must include the CGT event in his tax return in the year of the contract sale date and claim the 'Main residence exemption' in his tax return.
If you use your former home to produce income for more than 6 years in one absence, it is subject to CGT for the period after the 6-year limit.
To work out your CGT when you dispose of your home:
Roya bought an apartment for $180,000. She immediately started living in the apartment as her main residence:
As Roya rented out the apartment, she can treat it as her main residence during her absence for a maximum of 6 years. This is the period 29 September 1996 to 29 September 2002.
Roya must treat the apartment as though she acquired it:
Roya works out her CGT as follows:
She is eligible to use the 50% CGT discount to reduce her capital gain:
Roya is not entitled to a full main residence exemption. She must also report a net capital gain of $121,594 on her 2022 tax return for the period the main residence exemption wasn't applied.
If you use any part of your home to produce income before you stop living in it, you can't apply the continuing main residence exemption to that part.
This means you can't get the main residence exemption for that part of your home either before or after you stop living in it.
Helen bought a house in 2006 and moved in immediately:
Helen chooses to treat the house as her main residence for the 6 years it was rented out.
As 25% of the house was used to produce income during the period before Helen stopped living in it, the same proportion of the capital gain is assessable:
$400,000 × 25% = $100,000
