Main residence exemption – Getting the complex rules right

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

In the event of a marriage or relationship breakdown, eligibility for the main residence exemption takes into account the way in which both of you used the dwelling during your combined period of ownership. 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.