Keeping your home CGT exempt after you move out

Usually, you do not pay any Capital Gain Tax (CGT) when you sell your Principal Place of Residence (PPR). A property stops being your primary residence when you stop living in it. However, for CGT purposes, you can continue treating this property as your primary residence under the conditions below.

• If you have used it to produce income for up to 6 years,
• Indefinitely, if you didn’t use it to produce income.

You can continue to treat the property as your primary residence after you stop living there, and it will continue to be exempt from CGT only if you are not treating any other property as PPR (except for up to 6 months if you are moving house).

Criteria for Principal Residence Exemptions

1. The 6-year exemption period only applies when the property is your principal residence. If you rented out your home before you lived in it, the principal residence exemption doesn’t apply to the period you rented it out.
2. The usual rules for the principal residence exemption apply if the property is continuously your principal residence. If you use it to produce income, such as rent, you will be entitled to only a partial principal residence exemption from CGT.
3. Generally, if you are a foreign resident when your primary residence is sold, you are not entitled to claim the principal residence exemption.

Former home not used for income

If you don’t use your former home to produce income (for example, you leave it vacant or use it as your holiday house), you can treat it as your primary residence for an unlimited period after you stop living there. This only applies if you aren’t treating another property simultaneously as your primary residence.

Example:

Bill bought a unit and lived in it for three years. Then, he moved out to live with a friend while his son occupied the unit rent-free. Bill didn’t treat any other property as his primary residence. He sold the unit twelve years later and claimed the principal residence exemption from CGT.

Multiple absences from the primary residence

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 move back in or leave it vacant.

Example:

James signed a contract to buy a house in Brisbane on 15 September 2012 and moved in as soon as the contract settled. He moved to Perth on 10 October 2014 and rented out his Brisbane house. He signed an agreement to buy a new home in Perth on 3 October 2019 and moved in as soon as the contract was settled. The house in Brisbane was sold on 1 March 2024.

When he completed his 2023–24 tax return, James decided to treat the Brisbane house as his primary residence from October 2014, when he moved out, until he purchased his new residence in Perth in October 2019. This is less than six years. Under the ‘6-year rule,’ James can claim a partial principal residence exemption.

After he bought the Perth house, James decided not to treat the Brisbane house as his primary residence, so 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 principal residence exemption in his 2024 tax return (from October 2019 until March 2024).

Dwelling used to produce income during multiple absences

Jez signed a contract to purchase a house in 2004 and moved in as soon as the contract settled. He stopped living in the house in 2013 because he had to move for work, so he rented it for five years. Jez:

• Moved back into the house in 2018 and treated it as his primary residence for 2 years.
• Moved out again in 2020 and rented the house for 3 years.
• Entered into a contract to sell the house in 2023.

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 treat the house as his principal residence for both rental periods and disregard his capital gain or loss on the sale. 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.

What happens if the 6-year limit is exceeded

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:

• You need to work out your cost base, which is the market value of your home at the time you first used it to produce income, plus any allowable costs since then (this is the home first used to produce income rule)
• Your capital gain or loss is based on the period after first using your home to produce income, that is, over the 6-year limit.

The former home is used for income before you move out

If you use any part of your home to produce income before you stop living in it, you can’t apply the continuing principal residence exemption to that part. You can’t get the principal residence exemption for that part of your home before or after you stop living there.

Example:

Helen signed a contract to buy a house in 2006 and moved in immediately after the settlement. Helen:

• used 75% of the house as her primary residence and the remaining 25% as a doctor’s surgery
• moved out and rented out the house in 2018
• signed a contract to sell the house in 2024, making a capital gain of $400,000.

Helen chose 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

When does a property stop being your primary residence?

A property usually stops being your primary residence when you stop living in it. Several factors indicate whether a property is no longer your primary residence:

• you and your family no longer live in it
• your personal belongings are not kept in it
• it is no longer the address your mail is delivered to
• it is no longer your address on the electoral roll
• services such as gas and power are no longer connected.

The weight given to each of these factors depends on individual circumstances. The time you are absent from the property and your intention to re-occupy it may also be relevant.

Example:

Duc has lived in his house with his family for 5 years. It has been his primary residence for the whole period he has owned it. Duc accepts a 2-year posting overseas for work. During this period:

• Duc’s family will travel and live with him overseas
• Duc cancels his utility connections and places all of his personal belongings in storage
• His mail has been redirected to his overseas address, and his address has been updated on the electoral roll.

The house ceases to be Duc’s primary residence during his absence. However, depending on his other circumstances, he may continue to treat it as his primary residence while away.