Facts
Scenario 1: your client has lived in the home (main residence) and decides to move out and rent the property. Scenario 2: your client has an investment property and decides to move in to that property as their home.
Question
How is the CGT main residence exemption calculated in each scenario?
Answer
Scenario 1: the market value of the property, at the time your client moves out, is the cost base of the property. Note, the moving out time must be on or after 20 August 1996. Scenario 2: the period of time the property is used as a home, over the entire ownership period, is used.
Tax Tip
Both scenarios are subject to section 118-185 ITAA 1997 (about partial exemption where dwelling was your main residence during part only of ownership period) which allows a partial CGT main residence exemption calculated based on a period of time – this is scenario 2. However, scenario 1 is subject to a special rule under section 118-192 ITAA 1997 (about first use to produce income) which deems your client to have acquired the main residence for its market value at the time they move out.
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