Understanding Main Residence Exemption Basics

The Main Residence Exemption (MRE) is one of the most significant tax concessions available to Australian residents but also one of the most misunderstood. Our unofficial statistics rank it the most frequently misquoted at summer barbeques every year. The basic premise is simple but the law itself is complex, loaded with exceptions, choices, and extra rules meant to suit your unique circumstances. So what do you need to know?

Primary Scenario: The Basics

Picture this: You can disregard a capital gain or loss in a straightforward case. How? When specific CGT events occur related to your ownership interest in a dwelling. This exemption applies if your property was your main residence during the full period of ownership, not an investments property, and sits on less than two hectares. Important note: Applying the MRE isn't a choice; meet the conditions, and it's a must!

Partial Exemptions: Tailored Solutions

Not eligible for a full MRE? You might still be in for a partial exemption. Think of situations where your dwelling was your main residence part-time, used for income, or the land is bigger than two hectares.

Determining Your Main Residence

Is your property your main residence? It depends on factors like how long you've lived there, essential services hooked up, and the intent to occupy. Mere intention is not suitable, you need the evidence! Plus, there's no set minimum stay to claim it as your main residence.

Relocating to a New Main Residence

Your new place becomes your main residence from the ownership day, provided you move in straight away. Delays due to unforeseen circumstances can extend the MRE, but not if you're renting it out during the delay.

The 'Six-Month Rule': Juggling Residences

Usually, it's one residence at a time. But, if you're switching homes, you might fit in two under the ‘six-month rule.' Conditions include a three-month main residence stint in the year before you sell and no income production during that time.

Former Home as Main Residence

Still attached to your old house? You can treat it as your main residence for up to 6 years if it made some cash (the ‘six-year absence rule') or forever if it didn't. But, if you stick with the old house, no new main residence, except for specific cases like the ‘six-month rule.'

Other Situations

There are special rules for all sorts of situations, like if you're living apart from family, building, or fixing up your house, your home gets destroyed or taken over, you want to claim the MRE for the land next to your house, you inherited your home, you are overseas or you got it through a marriage or de facto relationship breakdown.

So, remember that it is always important to talk to your accountant about your personal residence – not only when you buy and sell but whenever your circumstances or use of the property change. You can save yourself (or cost yourself) a lot of money.