Your main residence is generally exempt from capital gains tax (CGT) when you sell it. But when you separate and one party moves out, the rules change. The six year absence rule may allow you to maintain the exemption temporarily, but it depends on your circumstances. This is general information only. Always seek professional tax advice for your specific situation.
The main residence exemption
If the family home is your main residence and has been for the entire period you have owned it, any capital gain you make when selling it is generally tax free. This is the main residence exemption under Australian tax law. It applies automatically when you sell the home you have been living in.
During separation, the complication arises when one party moves out. At that point, the property may no longer be that person's main residence. If you are considering whether you can keep the family home, the CGT implications are an important part of the decision.
The six year absence rule
Under section 118-145 of the Income Tax Assessment Act 1997, if you move out of your main residence, you can continue to treat it as your main residence for CGT purposes for up to six years, provided you do not treat another property as your main residence during that period. This is commonly called the six year absence rule.
In a separation context, this means the party who moves out may be able to maintain the CGT exemption on the family home for up to six years after leaving. If the property is sold or transferred within that period, and no other property has been claimed as their main residence, the exemption may still apply.
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Book a confidential chatHow separation timelines interact with CGT
Property settlements can take months or years to finalise. If you moved out of the family home when you separated and the settlement takes three years, you have used three of your six years. If the property is then transferred to your ex-partner or sold as part of the settlement, the timing matters. You need to be aware of the time limits for property claims as these can interact with your CGT position.
Transfers between spouses or former spouses under a court order or BFA may have CGT rollover relief, meaning the transfer itself does not trigger a CGT event. But the receiving party takes on the original cost base, which affects their future CGT position if they later sell the property.
When CGT does apply
CGT may apply if: the property was not your main residence for the entire ownership period, the six year absence period has expired, you have claimed another property as your main residence, or the property was used to produce income (such as renting it out) during a period when you did not have the absence concession. The stamp duty exemption in SA is a separate matter from CGT and has its own conditions.
If you are using the keep or sell calculator to decide whether to hold the property, factor in the potential CGT liability as part of the true cost of keeping it long term.
Get professional tax advice
CGT rules are complex and fact specific. The information above is general in nature. Your tax position depends on your ownership history, the dates you lived in the property, whether it was ever rented, and the terms of your settlement agreement. A qualified tax adviser or accountant should review your specific circumstances before you make decisions about selling, transferring, or retaining the family home.
