Different Main Residences for Australian Spouses

Occasionally, Australian spouses may have separate primary residences from their partners. This triggers specific Capital Gains Tax (CGT) rules, allowing just one CGT main residence exemption during this period. Making informed choices becomes essential to achieve favourable tax outcomes and avoid problems. 

Typically, spouses share a primary residence while living together. However, sometimes there are temporary separations, resulting in two concurrent primary residences. 

Spouses have two options to consider: 

  1. Select a single dwelling as the main home for both during this period. 
  1. Choose different homes as the main residence for each spouse. 

How Option 2 works: 

  • If a spouse’s ownership in the chosen dwelling is 50% or less, the nominating spouse can claim a full exemption on that share for the entire period of different residences. 
  • If ownership exceeds 50%, the nominating spouse can only claim an exemption on that share for half of the period with different residences. 

Mutual Application and Partial Exemption:  

The same rules apply to the other spouse. If their ownership is 50% or less, they are eligible for an exemption on their share. If their partner owns over 50%, they can claim an exemption for their share, but only for half of the period with differing residences. 

This leads to partial exemption rules to account for the period when each spouse’s interest in the respective properties doesn’t meet the “CGT main residence” criteria during ownership. 

An example: 

Karl and Kerry bought a house in Brisbane, in 2005. They lived there until November 2016. Later, they acquired a $700,000 townhouse in Melbourne, where Karl worked for three years. Karl owns 80%, Kerry owns 20%. 

After three years, Karl returns to Brisbane, and they sell the Melbourne townhouse for $740,000. 

During their separation, Karl nominates the Melbourne townhouse, while Kerry nominates the Brisbane house. Tax rules mean Karl’s 80% ownership qualifies for a half exemption for the separation period (1.5 out of 3 years). Kerry’s ownership below 50% qualifies her Brisbane house for a full 3-year separation. 

Partial exemption rules then reflect the period when Karl’s and Kerry’s interests in the properties didn’t meet the criteria for “CGT main residence” status during their ownership. 

Understanding these rules is vital for couples with different, simultaneous main residences. Making sound decisions influences tax outcomes, with partial exemption rules considering periods when each spouse’s property interest doesn’t meet the “CGT main residence” criteria during ownership.