Can I Move into My Rental Property to Avoid Capital Gains Tax in Australia?

Are you considering moving into your rental property to dodge the dreaded capital gains tax (CGT)? While it might seem like a smart move, there are important rules and traps to be aware of. Let's dive into the specifics and make this Gotax topic as entertaining and informative as possible!

The Basics of Capital Gains Tax (CGT)

Capital Gains Tax is the tax you pay on the profit from selling an asset, like property. If you sell a rental property, you generally need to pay CGT on any gain. However, there's a way to reduce or even avoid CGT by moving into your rental property and making it your main residence.

The Main Residence Exemption

The main residence exemption allows you to avoid CGT on your home. To qualify:

• The property must be your primary place of residence.
• You must live in the property for a sufficient period.

Gotax your Online Tax Experts

How Long Should You Live There?

To take advantage of the main residence exemption:

• You should live in the property for at least 6 months.
• The longer you live there, the stronger your case for claiming the exemption.

Traps to Avoid

1. Short-Term Moves:

   • Moving in for a short period (e.g., a few weeks) before selling is unlikely to qualify for the exemption.
   • Example: John moved into his rental for 2 months before selling. The ATO disallowed his claim for the main residence exemption.

2. Partial Exemptions:

   • If the property was rented out for part of the time you owned it, you might only get a partial exemption.
   • Example: Sarah owned a property for 10 years, rented it for 8, and lived in it for 2. She can only claim a partial CGT exemption.

3. Dual Residency:

   • You can’t claim two properties as your main residence simultaneously.
   • Example: Mark tried to claim both his city apartment and his rental property as his main residence. The ATO disallowed one claim.

Non-Deductible Expenses

While moving into your rental property can help with CGT, not all expenses are tax deductible:

• Initial Repairs: Fixing issues that existed when you bought the property.
• Improvements: Adding new features or significant upgrades.
• Personal Use Costs: Expenses incurred while living in the property.

Example of Non-Deductible Expenses

• Initial Repairs: Replacing a broken window that was damaged before you bought the property.
• Improvements: Adding a new deck or swimming pool.
• Personal Use Costs: Utility bills and groceries while you live there.

Gotax Online Tax experts common asked Q&A

Can I move into my rental property to avoid capital gains tax in Australia?

Moving into your rental property may reduce capital gains tax, but it does not automatically exempt you from it.

Does living in my rental property make it my main residence for CGT?

If you move in and genuinely make it your main residence, you may be eligible for the main residence exemption from CGT for the period you live there. 

Can I claim the full main residence exemption if the property was rented first? 

No, you can only claim the exemption for the period the property was your main residence, not while it was rented.

How is capital gain calculated if I move into my rental property? 

The capital gain is apportioned based on the time the property was rented versus the time it was your main residence. 

What records do I need if I move into my rental property?

Keep records of when you moved in, when you moved out, and periods the property was rented to calculate the CGT exemption.

Can I use the six-year rule for my rental property? 

Yes, if you move out and rent your main residence, you can treat it as your main residence for up to six years for CGT purposes. You cannot have another Principal Place of Residence during this period.

Does moving in just before selling avoid CGT?

No, simply moving in before selling does not wipe out CGT; only the period you genuinely lived there as your main residence is exempt.

What if I never lived in the property? 

If you never lived in the property, you cannot claim the main residence exemption and CGT will apply to the whole gain.

Can I partially avoid CGT by living in the property for a short time? 

Yes, you may get a partial exemption, but CGT will still apply to the period it was rented. 

Do I need to notify anyone when I move in?

You don’t need to notify the tax office, but you must keep evidence like utility bills and electoral roll details to prove you lived there.

Can I choose which property is my main residence?

Yes, if you own more than one property, you can choose which one is your main residence for CGT, but only one at a time.

What happens if I move in and out multiple times?

You need to keep detailed records of each period you lived in the property and rented it out to correctly calculate any CGT exemption. 

Gotax Piece of Tax Advice

Strategic Property Planning: Consider the timing of your move and the duration you plan to live in the property. If done correctly, this strategy can save you a significant amount in CGT. Always consult with a Gotax Online Tax professional to ensure you meet all requirements and make the most of available exemptions. 

Gotax Deduction Grabber App

Maximise your tax deductions with the Gotax Deduction Grabber App! This app has all the logbooks and tax expense recording systems you need. Scan the QR code to download and start saving today.

Gotax, Online Tax Experts. Maximise your Refund… 2025 Complete Return $65, Simple Return $25. Small Business $140, Rental $109+.

Gotax.com.au Australia's easiest, cheapest, smartest (Ai) online tax service.