Capital gains tax exemption rule
Typically, the rule for an exemption to capital gains tax applies to the family home, or “main residence”, and the the rule usually applies for only one home at any given time.
Exception to the rule
Did you know that there is also an exception to that rule? The exception allows for a taxpayer to have two main residences and still keep the Capital Gains Tax free status for both homes for a temporary period.
CGT and the six month rule
The CGT-free rule is known as the six month rule and declares that two properties can be claimed as a main residence simultaneously where a taxpayer buys a home that becomes their new main residence before they dispose of the original home.
This rule make sense because it allows for an overlap of time in which a taxpayer can claim exemption from CGT for two properties — one newly acquired and one that is yet to be sold. Selling the original dwelling may take longer than six months, but the CGT exemption only applies for the six month period.
The Tax Office cannot extend this concession
The concession is available for the earlier of; six months after taking ownership of the new house, or when you transfer ownership of the old house.
However, there are two conditions you must meet to qualify for the concession:
- The old house must have been your main home for at least a continuous three month period in the twelve months before transfer
- And if it was not your main home for any of that time, then it cannot have been used to generate income.