CGT Main Residence Exemption

Hi everyone. This is my first post but I'm hoping to contribute more in the future.

Anyway I was hoping some tax professionals could help me with my question. Why is the main residence exemption only available if you move out completely?

e.g.

Scenario 1
If I bought a house, established it as my PPOR, and then decided to rent out one of the rooms while still living in there. I'd be up for CGT when I sell the house as I used it to produce income, however it never ceased to be my PPOR.

vs

Scenario 2
If I bought a house, established it as my PPOR, moved out and rented a room in a house across the road, and rented out my PPOR for < 6 years. If I then sold it, it would remain completely CGT free even though my actual PPOR was down the street and I merely elected the rented property as my PPOR.

Have I misinterpreted the main residence exemption? Would love to hear your input.

Thanks!
 
2 answers

1. Because that is the law

2. It is probably meant to allow for people to move around for work or travel etc and not designed for allowing people to profit from the house while living there
 
Cgt

You should also consider that you dont pay CGT on 100% of the property if you earn income from letting one room. You also have an apportunity to claim deductions for ownership costs over the period of tenacy which shouldnt be overlooked. The apportionment basis is demonstrated in the example below and it applies to the floor area and the period of time. Note that the bedroom area alone isnt relevant. The bedroom + a portion of shared areas also should be considered to be "reasonable".

Facts
? Peter purchased a 2 bedroom unit in July 2006 and made it his main residence.
? After struggling with mortgage repayments he rented the smaller bedroom to a student from July 2008 to July 2011 at commercial rates.
? During this period he claimed 40% of his mortgage interest as a deduction on a floor space basis: 15% attributable to the tenanted bedroom and 50% of the unit's floor space that was made up of shared living, bathroom and cooking facilities (which was half of the total floor space of the unit).
? Peter sells the unit in July 2011. The relevant capital gain is $150,000.

Issue
What are the CGT implications for Peter?
Analysis
In applying the partial exemption rule to determine his capital gain the following calculation would be reasonable: $150,000 ? 40% ? 3 years of income use
5 years in ownership period
= $36,000 capital gain

Source : Cooper & Evans on CGT [Example 12 250.10]
 
I think your question relates to the apparent unfairness in renting out a part of a house as opposed to renting the full house. One has CGT implications and one may not.

Yep that's the law so live with it. You can waste a lot of time trying to make sense of some of these rules.
 
As per Terry ...

Aimed at CGT relief for people posted interstate/overseas temporarily who do not have another exempt main residence whilst absent.

If they rented out part of thier home prior to vacating then they would only get a partial absence exemption.
 
Makes more sense when you argue that it's sort of a CGT relief for certain taxpayers.

Just thinking out loud and playing devil's advocate here. Is the 'relief' necessary if those taxpayers have the choice of not renting out their homes for additional income? They'll still remain CGT exempt. Isn't it their choice to live far from home / work in a job that requires them to be away from home?

You could argue that renting out dormant houses boosts the supply of rental accommodation, but isn't the taxpayer in scenario 1 who wants to rent out half of his house also contributing to the supply of rental accommodation?
 
Can you elect what is your primary residence?

Hi guys

I am hoping someone on here has been in this situation and may be able to point me in the right direction...

I have a property that I bought in 2009, which I have lived in since then. In October last year my partner and I purchased a property together that needed extensive renovations. We have been going between the two properties while doing the renovations (though sleep at my property the majority of the time as they are only 5min away from each other). We stated that the new property would be our primary residence when we purchased it (on the transfer/stamp duty paperwork) as we were planning on finishing the renovations and moving into it and then renting out my house. We have been approached by people who are very keen on purchasing the renovated house from us but we're not sure if it will be considered our primary residence or not. Does anyone know the rules that would apply in this instance? ...I've heard something about being able to elect which residence you want to have as your primary residence if you have more than one property that you don't earn an income from??

Thanks heaps for your help! :D
 
Just be aware that if you sell the new property without moving in and actually living there then you will be liable for extra stamp duty on the purchase price as the concession for a PPOR will not apply.
Marg
 
Do you know what is considered "moving in"? ...If we are staying there on the weekends and have parking permits, etc, is that considered moving in? ...we keep our pets at the other house so it's easier to go between the two but it would not be difficult to stay in the new house 'full-time' until it's sold if that makes a big difference? Is there a minimum time you need to live in it for?
 
Do you know what is considered "moving in"? ...If we are staying there on the weekends and have parking permits, etc, is that considered moving in? ...we keep our pets at the other house so it's easier to go between the two but it would not be difficult to stay in the new house 'full-time' until it's sold if that makes a big difference? Is there a minimum time you need to live in it for?

What counts is the establishment of one place as your principal residence. This generally requires more than moving in.
 
Do you know what is considered "moving in"? ...If we are staying there on the weekends and have parking permits, etc, is that considered moving in? ...we keep our pets at the other house so it's easier to go between the two but it would not be difficult to stay in the new house 'full-time' until it's sold if that makes a big difference? Is there a minimum time you need to live in it for?

"Moving in" is not the issue at all.

"Main residence" is not defined in tax law.

Therefore it takes its ordinary meaning ... so pick up a dictionary.

This is exactly what the AAT will do and then examine all the facts to decide if:

(A) It is a "residence" rather than a "dwelling"; and

(B) It is your "main residence" rather than just a "residence".

Don't think that technical paper trails will carry the day. The AAT has seen it all before.

Cheers,

Rob
 
What counts is the establishment of one place as your principal residence. This generally requires more than moving in.

Yeah, I'm not sure how exact that has to be as a weighting process...
- more number of nights spent at one house = old house
- more day hours spent at one house = new house
- where utilities bills go = they go to each house
- furniture = at both houses

If you can show residence at both houses can you then make a choice for the given period?
 
If you can show residence at both houses can you then make a choice for the given period?

No. You must show more than "residence" to access the main residence exemption.

A residence may be an actual "main residence" or a "deemed main residence".

Before the new residence gets a choice as a "main residence" (actual or deemed), it must actually become your or your spouse's "main residence" as a question of fact.
 
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