Defining a main residence and whether or not it is always tax free!

Defining a main residence and whether or not it is always tax free!

Generally, a dwelling that qualifies as your main residence is exempt from capital gain or loss when a relevant Capital Gains Tax event happens (i.e., disposal of the dwelling). So, what defines a dwelling as a main residence?

A dwelling includes:

  • A house or unit and land immediately under the dwelling
  • Up to 2 hectares of adjacent land (including associated structures) used for private or domestic purposes if the land and the dwelling are sold together
  • A caravan, houseboat, or other mobile home

However, the mere intention to occupy a dwelling as a main place of residence without actually doing so is not sufficient to qualify for the exemption.

The relevant factors to determine if a taxpayer has established a main residence include:

  • The length of time the taxpayer has lived there (there is no defined minimum period)
  • The place of residence of the taxpayer’s family
  • Whether the taxpayer has moved his or her personal belongings into the dwelling
  • The address to which the taxpayer has his or her mail delivered
  • The taxpayer’s address on the electoral roll
  • The connection of services such as telephone, gas and electricity
  • The taxpayer’s intention in occupying the dwelling

The date a taxpayer acquires ownership interest in a dwelling and can move in (usually the settlement date) is the date from which it is considered to be the main place of residence. However, if at settlement the dwelling is occupied by a tenant, the main residence exemption is only available from the time the tenant moves out and the owner moves in.

The main residence exemption is only available to individuals, and not to a company or (with certain exceptions) a trustee (including an individual trustee).

The full exemption will not apply if any part of your home is used to produce income (such as renting out a room or running a business). In this case, you will be liable for a portion of the capital gain upon the Capital Gains event.

The exemption may be available to the trustee or beneficiary of a deceased estate on the disposal of a dwelling when

  • the dwelling is disposed of within 2 years of the deceased’s death
  • disposal occurs after the dwelling has been occupied by (a) a surviving spouse, (b) an individual with a right to occupy the dwelling under the deceased’s will or (c) a beneficiary to whom the ownership interest passed.

Partial exemption may be applied if these criteria are not met.

The exemption may also be available to the trustee of a Special Disability Trust where the dwelling is used by the principal beneficiary as their main residence.

There are many rules and variations to be considered, so it is important that you seek advice to ensure that you get it right – this is where we can help.