Copyright notice

The Taxation Institute of Australia website and all the content downloaded (except Third Party Products*) from the
Taxation Institute of Australia website remains the property of the Taxation Institute of Australia and shall not be
reproduced, distributed, displayed or disclosed without the written permission of the Taxation Institute of Australia.
*Copyright of the Third Party product applies
Disclaimer notice

Capital Gains Tax

Main Residence Exemption
David Hawkes

The material published in this paper is published on the basis that the opinions expressed are not to be registered as the
official opinions of the Taxation Institute of Australia. The material should not be used or treated as professional advice and
readers should rely on their own enquiries in making any decisions concerning their own interests.

PricewaterhouseCoopers

Main Residence Exemption

Full Exemption (s118-110)

Relevant CGT events

(s118-110)

The capital gain/loss that an individual makes from a CGT

event in relation to a CGT asset that is a dwelling or an
ownership interest in it is disregarded if:

A1 Disposal of a CGT asset (s104-10);

the dwelling was their main residence throughout the

ownership period
the dwelling was not used for income producing purposes
s118-190; and
the land the dwelling is situated on is no more than 2
hectares s118-120.

Main Residence Exemption

Key Concepts

E1 Creating a trust over a CGT asset (s104-55);

E2 Transferring a CGT asset to a trust (s104-60);
I1 Individual or company stops being a resident (s 104-160);
I2 Trust stops being a resident trust (s104-170);
K3 Asset passing to a tax-advantaged entity (s104-220).
Also B1, C1, C2, F2, K4 and K6

Main Residence Exemption

Individual (s995-1)

Individual (s995-1)

Means a natural person (s995-1);

Dwelling (s118-115)

Excludes a family company or a family trusts (except

where the trust is a bare trust) TD 58;

Main Residence (TD 51)

Ownership period (s118-125)
Ownership Interest (s118-130)

Separate provisions apply to beneficiaries or trustees of

deceased estates (s118-110(1)(c)).

Main Residence Exemption

Dwelling (s118-115)

Main Residence Exemption

Building or part of a building consisting mainly of

residential accommodation (eg house, apartment or
flat);

Not a defined term

The land immediately under the accommodation;

Caravan, houseboat or other mobile home.

Main Residence Exemption

Ownership Period
A period commencing:
on or after 20 September 1985;
when ownership interest in the dwelling or land on
which the dwelling is later built commences.

Main Residence

Factors to consider TD 51
the length of time the taxpayer has lived in the dwelling;
the place of residence of the taxpayers family;
whether the taxpayer has moved any personal
belongings into the dwelling;
the address to which the taxpayer has mail delivered;
the taxpayers address on the Electoral Roll;
the connection of services such as telephone, gas and
electricity ; and
the taxpayers intention in occupying the dwelling.

Main Residence Exemption

Ownership Interest (s118-130)
Ownership interest commences at the time an
individual obtains legal ownership (or at the time
they have a right o occupy the dwelling if that is an
earlier time) - s118-130(2).
Ownership interest ceases when legal ownership
ends - s118-130(3).
Accordingly, given that a taxpayer's legal ownership
in a dwelling passes at the date of settlement, the
taxpayer's ownership interest in a dwelling also
starts and ends at settlement.

Main Residence Exemption

Main Residence Exemption

Land Adjacent to the Dwelling

Can only have one main residence

Exempt from CGT to the extent that:

it is used primarily for private and domestic
purposes in association with the dwelling; and
the land is 2 hectares or less can choose to
exempt any area of the land (TD 1999/67).

Can only have one main residence at any one time

unless changing main residence (s118-140). Both
residences are exempt if the old residence:
was the main residence for a continuous period of at least
3 months in the last 12 months;
was not used for the purpose of producing assessable income
during that 12 month period when it was not the main residence;
and
is disposed within 6 months of acquiring the new one. Otherwise
the exemption for the old residence applies only for the last 6
months.

Main Residence Exemption

Main Residence Exemption

Absence rule (s118-145)

Partial exemption (s118-185)

If an individual is absent from their main residence they

can still treat it as their main residence where:
it is used for an income producing purpose up to 6
years (the 6 year period commences again each time
the dwelling becomes and ceases to be the main
residence); and
it is not used for that purpose indefinitely.
If you have 2 properties which can qualify as your main
residence then you can choose which property is
treated as your main residence. The choice is made in
the year of disposal, with the benefit of hindsight.

Applies if the dwelling was the individuals main

residence for only part of the ownership period;
The capital gain/loss is calculated as follows:
Total CG or CL x

Non-main residence days

Days in the ownership period

You should consider what can be included in the cost

base of the dwelling s110-25(4) if purchased after 20
August 1991.

Main Residence Exemption

Main Residence Exemption

Market value rule (s118-192)

Market value rule (s118-192)

Conditions (s118-192):
would only get a partial exemption for a CGT event
happening in relation to a dwelling because dwelling
was used for the purpose of producing assessable
income during the ownership period, and

Applies automatically if conditions are satisfied ie not

by choice.
Effect of MV rule:
Deemed to acquire the dwelling for market value at the
time the dwelling was first used for income producing
purposes.

that use occurred after 20 August 1996, and

would have got full exemption if the CGT event
happened just before the first time the property was
used to produce assessable income.

Main Residence Exemption

Main Residence Exemption

Interaction between rules

CGT calculation

Interaction between

Calculate Capital proceeds

Absence rule (s118-145)

Partial exemption (s118-185)
Market value (s118-192)

Usually, the amount of money and/or market value of any

property received or receivable by the taxpayer in respect
of the CGT event happening

Calculate Cost Base (original cost or market value as per

s118-192) plus adjustments

Main Residence Exemption

CGT calculation
Adjustments to cost base include: (Div 110)
1. Incidental costs incurred to acquire the CGT asset or that relate
to the CGT event;
2. Non-capital costs of ownership only relevant if asset was
acquired after 20 August 1991;
3. Capital expenditure incurred to enhance value of asset, reflected
in state of asset at the time of the CGT event .i.e. disposal; and

Case Study 1
On 30 June 1992, Theodore paid $200,000 for a house
that was his main residence until 30 June 1997 at which
time it had a market value of $350,000. Theodore then
rented out the dwelling until it was sold for $700,000 on 30
June 2006 i.e. 9 years after its first income producing use.
Theodore has elected for the s118-145 six year extension
to main residence exemption to apply.
Calculate his capital gain for the 2006 year.

4. Capital expenditure incurred in establishing, preserving or

defending the taxpayers title to, or right over, the asset.

Case Study 1

Case Study 1

1. Calculate the capital gain (CG) using a stepped up cost

base per s118-192 (ie $350,000 at 30 June 1997)
2. Apportion the capital gain using the rule in s118-185 i.e.
CG
X
Non main residence days

Days in your ownership period

($700k - $350k) X
1,096

Days in your ownership period

The days in ownership period are calculated from the

deemed acquisition date i.e. when the dwelling first
became income producing. Accordingly, this will be the
period of 9 years (3,287 days) from 1 July 1997 till 1 July
2006.
($700,000 - $350,000)
X
1,096
3,287
Capital Gain
=
$116,702

Main Residence
Exemption - Other Issues

Main Residence
Exemption - Other Issues

FAMILY SITUATIONS

marriage breakdown (s118-180);

dependent child with different main residence (s118-175);
spouse having a different main residence (s118-170):
DWELLINGS ACQUIRED FROM DECEASED ESTATES

BUILDINGS, REPAIRS, RENOVATIONS

Land can be treated as a main residence for up to
4 years if an individual:
builds a dwelling on the land;
repairs or renovates an existing dwelling on the land; or

The basic rule regarding main residence exemption does not

apply (s118-110(1)(c));

finishes a partially constructed dwelling on the land.

Full exemption from CGT may apply where a dwelling

passes to a beneficiary or a trustee of a deceased estate
(s118-195);

moves into the dwelling as soon as practicable; and

and

continues to use the dwelling as their main residence for at least

3 months.

CGT Main Residence TIA briefing 27 March 2007

Case Study 2
Calculate the amount of gain that is taxable on Ians Sydney home based on
the facts below and assuming:
Ian chooses to treat his Sydney home as his main residence for the
period after he ceased living in it
Ian bought his home for 100,000, sold it for $500,000. He also added a
rumpus room in the 1991 which cost him $5,000.
The market value of the property on 1 January 1992 was $120,000 and
on 1 February 1997 was $300,000.

1 July 1990

Ian bought a home in Sydney and used it as his main

residence.

1 January 1992

Ian was posted to Brisbane and bought another home there.

1 January 1992 to
31 December 1996

Ian rented out his Sydney home during the period he was
posted to Brisbane.

31 December 1996

Ian sold his Brisbane home and the tenant in his Sydney
home left. Ian moved back into his Sydney home

1 February 1997

Ian was posted from Sydney to Melbourne and bought a

home in Melbourne. Ian rented out his Sydney home again

31 January 2004

Ian sold his Sydney home