Ask Ban Tacs Question
I am currently separating from my Wife; we both own a residence (as joint tenants) and I have agreed to relocate for a number of years (rent an apartment) until my child finishes school.
If I move out for say 24 months and my wife remains in the house (principal place of residence) do I incur capital gains tax on any appreciation on the family home for those 2 years.
Is there a period that I can do this for, or it is for when I move out.
Answer
This is all fine as long as you don’t buy another property.
You have two reasons you are able to cover the property with your main residence exemption.
Section 118-145 ITAA 1997 commonly referred to as the 6 year rule. This rule allows you to cover a dwelling that was previously your home, with your main residence exemption for an infinite period of time if it is not earning income. The 6 year limit only applies if it is earning income.
Section 118-175 ITAA 1997 allows you to cover a home where your child under 18 years of age lives, with your main residence exemption even though you do not live there. But you do have to be contributing to their maintenance.
What you need to be aware of is there is no reset to market value at any time because it has not been used to produce income. So if for example you did buy another place to live. You have the choice of which home you cover. Half of this home or all of the new home you buy. Because it is probably covering a bigger portion you might prefer to cover the new home you buy. Thus exposing the old home from that point. The trouble is it is a pro rata calculation. You have to work out the capital gain right back to the day you first bought the property then apportion that between days covered by your main residence exemption and days not.
The trick, if there is going to be some exposure to CGT and you purchased the house after 20th August 1991, is to keep receipts for everything associated with the home for the time you owned it, reference section 110-25(4) ITAA 1997. This includes cleaning materials and other maintenance and repairs as well as interest, rates, insurance, improvements etc.
Another couple of traps to watch out for:
Becoming part of a couple again, with someone new, that is. A member of a couple is only entitled to cover half a main residence so you could still cover the original home as you only own half of it but what about your new partner? If she owns her home and you move in then her home is half exposed to CGT unless you choose to cover her home with your half main residence exemption and not your old home.
Do not sell while you are living overseas as that will lose you all the main residence concessions right back to when you first purchased the property.
