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How to Minimise CGT Implications on Former Main Residence

The temporary absence rule (Section 118-145) is not something you think about when you move out of our principal place of residence and commence using the property as a rental property. I have been seeing a lot more of it lately in practice so thought I would share, and hopefully it provides you with a future benefit.

Where a dwelling ceases to be used as a main residence, the temporary absence rule allows the owner to choose to continue to treat the dwelling as their (deemed) main residence for all of part of the period that they are not living in the property. The period during which the temporary absence rule applies is as follows:

  • if the dwelling is not used for income producing purposes when the taxpayer moves out – the taxpayer can treat the dwelling as their main residence indefinitely; or
  • if the dwelling is used for income producing purposes (rented out) the dwelling can be treated as the taxpayer’s main residence for a maximum period of up to 6 years while it is used for that purpose during a single period of absence.

When you make this choice you cannot generally treat any other dwelling as your main residence during the period the temporary absence rule applies. This is important if you buy a new home to move into and rent out your existing home.

The six year temporary absence rule can apply in relation to each separate period of absence. The only condition is you need to move back into the property prior to the six years before renting it out again.

Example – John moves overseas for work in March 2008. John rents out his main residence for 5 years. John returns home and moves back into his main residence for one year and then move back overseas for work in March 2014. The six year absence rule will start again from March 2014.