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Understanding the Main Residence Exemption When Renting Out Your Property

Are you planning to move out of your property, which has been your primary residence, and intend to rent it out? You might be wondering if you can still claim the property as your main residence. Here's what you need to know about the main residence exemption:


1. Temporary Main Residence Status: If you decide to use your property to generate income by renting it out, you have the option to treat it as your main residence for up to six years after you move out. During this period, you can still enjoy the benefits associated with the main residence exemption.


2. Exceeding the Six-Year Limit: If you continue to rent out the property for more than six years, there is an important tax consideration. At this point, the Australian Taxation Office (ATO) will deem that you acquired the property at its current market value when you first used it to generate income. Consequently, the regular Capital Gains Tax (CGT) rules will apply when you eventually sell the property.


3. Retaining Main Residence Exemption: On the other hand, if you stop renting out the property and do not live in it after the six-year mark, the main residence exemption rules will continue to apply. It's crucial to note that during this period, you cannot designate another property as your main residence. This rule applies to both married couples and de facto partners.


4. Retrospective Application Not Permitted: Importantly, you cannot apply these main residence exemption rules for any period before the property became your main residence. These rules come into play when you start using the property to produce income.


It is worth noting that with Short Term Rental Accommodation such as Air BNB or Stayz where you rent a part of your property this jeopardises your main residence exemption for that part for the period that it is rented. Very difficult to keep track of. Another consideration is where you move out for 3 weeks at Christmas, rent your house and go to Hawaii, this means that three weeks of your ownership period is not eligible for the main residence exemption.


If you have any questions regarding the main residence exemption please contact your Client Manager.




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