How the CGT main residence exemption works if you move out and use the 6-year rule when renting out your former home.

How it works

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:

• for up to 6 years if you used it to produce income, such as rent (sometimes called the ‘6-year rule’)
• indefinitely if you didn’t use it to produce income.

During the time that you treat the property as your main residence after you stop living in it:

• It continues to be exempt from CGT (the same as if you were still living in it, even if you start renting it out after you leave).
• You can’t treat any other property as your main residence (except for up to 6 months if you are moving house).

Eligibility

The property must have:

• been your main residence first – you can’t apply the main residence exemption to a period before a property first becomes your main residence (for example, if you rented out your home before you lived in it, the main residence exemption doesn’t apply to the period you rented out your home)
• stopped being your actual main residence – that is, you stopped living in it.

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), generally you aren’t entitled to claim the main residence exemption.

When and how to make the choice

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:

• you choose to treat as your main residence when you no longer live in it
• you actually lived in.

In this case, you make the choice in the income year you first sell one of those properties.

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 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.

Former home used for income

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:

• move back in
• leave it vacant.

Former home 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 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.

If you have any questions, feel free to ask them in the comment section. We will be happy to answer all your queries.