Your Family Home and Capital Gains Tax

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Home Ownership is living the dream for many Australians.

Under current legislation, individuals are provided with special tax treatment of their main residence. For the most part, a capital gain or loss  an individual makes from the sale of their main residence is tax-exempt under S. 118-110.

The main residence rule applies to a Capital Gains Tax (CGT) event in relation to a ‘dwelling’, therefore it is essential to understand what constitutes a dwelling before applying the main residence exemption.

The term dwelling takes on the meaning of anything that is wholly or mainly for residential accommodation that is a building or contained in a building. Also included is a caravan, houseboat or other mobile home which is specifically included in the definition of ‘dwelling’ by S. 118-115(1)(b).

In order to apply the main residence exemption, the property being sold must include a dwelling: a vacant block of land will generally not qualify.

This special tax treatment also extends to conditions such as:

• Having two main residences during a six-month overlap period between selling an old main residence and purchasing a new main residence.
• The adjacent land upon which the dwelling sits: limited to 2 hectares. However, this does not include land which is sold separately as vacant land (except in limited circumstances). The subdivision of land does not itself trigger a CGT event and the main residence exemption will only qualify to separate tittles sold with the dwelling.
• Using your main residence to earn rental income as you would with a normal investment property for a period of 6 years or less you may still qualify for the full exemption. This rule applies each time a dwelling becomes and ceases to be the taxpayer’s main residence.
• Occupying a dwelling whilst renovating, then selling the property.
• Where an existing dwelling is demolished or destroyed and a new dwelling is built, the main residence exemption will qualify if the dwelling is completed within 4 years and continues to be the taxpayer’s main residence for at least 3 months upon completion.