Capital gains tax when you sell your own home

The test, set out as a form

If every answer is yes, the ATO says a capital gain on the sale of your home is not taxed, and a capital loss on it is ignored.

1. Are you an Australian resident for tax purposes?If you are a foreign resident when you sell, you are generally not entitled to the exemption.
   YesNo
2. Was it the home of you, your partner and other dependants for the whole time you owned it?A partial exemption may apply; the rules for moving in, moving house and moving out are on the sheets below.
   YesNo
3. Was it never used to produce income?That means you did not run a business from it, rent it out, or buy it to renovate and sell at a profit. If you did, a partial exemption may apply.
   YesNo
4. Is the land 2 hectares or less?If it is larger and used for private purposes, you choose which 2 hectares are exempt, and they must include the land under the home; the rest is subject to the tax.
   YesNo

What makes a place your main residence

Generally, a dwelling is your main residence if you and your family live in it, your belongings are in it, your mail goes there, it is your address on the electoral roll, and services such as gas and power are connected. How long you stay, and whether you intend to live there, may also be relevant.

The land needs a dwelling on it that you have lived in, so a vacant block does not qualify. The ATO gives as examples of a dwelling a house, a flat or apartment, a unit under strata title or in a retirement village, and a caravan, houseboat or other mobile home.

Two homes at once, for up to six months

If you buy your new home before you sell the old one, both can count as your main residence for up to 6 months, provided all of these are true:

• during the 12 months before you sold it, the old home was where you lived as your main residence for at least 3 months in a row;
• you didn’t use the old home to produce income, such as rent, in any part of those 12 months when it wasn’t your main residence; and
• the new property becomes your main residence.

If the old home takes longer than 6 months to sell, both homes are exempt only for the last 6 months before the sale; for the time before that, you choose which home to treat as your main residence. For a home you buy, the time you acquire it is the settlement date of the contract.

The former home, and the six-year rule

A home normally stops counting as your main residence once you move out, but for this tax you can keep treating it as your main residence for up to 6 years if you rent it out or otherwise use it to produce income, and indefinitely if you don’t. While you do, no other property can be your main residence, apart from an overlap of up to 6 months when you move house. If you are away more than once, the 6-year period applies to each absence separately.

For a former home that was rented out, the ATO says to report the capital gain, loss or exemption in the year you signed the sale contract, which is based on the contract date, not the settlement date.

Keep the records, even for an exempt home

The ATO says your main residence is generally exempt, but advises keeping every record anyway, because circumstances can change and the home can lose the exemption, for example if you start renting out part of it. The list:

• buying: the purchase contract, stamp duty, legal fees, the settlement statement, survey and valuation fees;
• selling: the sale contract, the sale settlement statement, legal fees and sales commission;
• owning: interest, rates, land taxes, insurance premiums and the cost of repairs;
• improvements: capital spending such as extensions or additions.

Keep them for at least 5 years after you sell. A property acquired before 20 September 1985 is exempt from capital gains tax, and if the first time you used your home to produce income was after 20 August 1996, you must have a record of its market value at that point.