Living separately to your spouse or children

Example: spouses with different main residences

On 1 July 1998 Kathy and her spouse Grahame entered into a contract to purchase a townhouse which they lived in together. Grahame owned 70% of the townhouse and Kathy owned the other 30%.

On 1 August 2000 they entered into a contract to purchase a beach house, which they owned in equal shares.

From 1 May 2001:

• Kathy lived in their beach house and nominated it as her main residence.
• Grahame kept living in the townhouse and nominated it as his main residence.

On 15 April 2023 Kathy and Grahame entered into a contract for the sale of both the townhouse and beach house.

Beach house

As the beach house was Kathy's main residence and she owned 50% of it, she disregards her share of any capital gain or loss for the period she and Grahame had different homes (1 May 2001 to 15 April 2023).

As Grahame did not live in the beach house or nominate it as his main residence when he and Kathy had different homes, he includes his share (50%) of any capital gain or loss for any of the period he owned it.

Townhouse

The total capital gain on the sale of the townhouse was $100,000.

Grahame's share of the capital gain is $70,000 (reflecting his 70% ownership interest). Because Grahame owned more than 50% of the townhouse, it is taken to have been his main residence for half of the period when he and Kathy had different homes. He is entitled to the main residence exemption for the entire period that he and Kathy lived together in the townhouse.

The amount of the gain that Grahame disregards under the main residence exemption is:

• his share of capital gain
• multiplied by: days the spouses have one main residence (1 July 1998 to 30 April 2001)
• divided by: total days the property was owned (1 July 1998 to 15 April 2023)
• equals: amount of gain disregarded for the period that spouses have one main residence.

That is:

$70,000 × (1,035 days ÷ 9,055 days) = $8,001

plus

• his share of capital gain
• multiplied by: 50%
• multiplied by: days the spouses have separate main residences (1 May 2001 to 15 April 2023)
• divided by: total days the property was owned (1 July 1998 to 15 April 2023)
• equals: amount of gain disregarded for the period that spouses have separate main residences.

That is:

$70,000 × 50% × (8,020 days ÷ 9,055 days) = $30,999

The total amount disregarded by Grahame is:

$8,001 + $30,999 = $39,000

Grahame's capital gain on the townhouse is therefore:

$70,000 − $39,000 = $31,000

Kathy's share of the $100,000 capital gain on the townhouse is $30,000, reflecting her 30% ownership interest. She is entitled to the main residence exemption for the period that she and Grahame lived together in the townhouse. The amount she disregards is:

• her share of capital gain
• multiplied by: days the spouses have one main residence (1 July 1998 to 30 April 2001)
• divided by: total days the property was owned (1 July 1998 to 15 April 2023)
• equals: amount of gain disregarded for the period that spouses have one main residence.

That is:

$30,000 × (1,035 days ÷ 9,055 days) = $3,429

Kathy's capital gain on the townhouse is therefore:

$30,000 − $3,429 = $26,571

CGT discount

Kathy and Grahame can use the CGT discount to reduce their respective capital gains (after applying any capital losses) because they owned the townhouse and beach house for at least 12 months and are Australian residents. (For the townhouse, which was bought before 21 September 1999, they have the option of indexing the cost base instead of using the discount.)

End of example

Example: different main residences and continuing main residence

On 5 February 1999 Anna and her spouse Mark bought a townhouse and moved in together. Anna owned more than 50% of the townhouse.

Before moving into the townhouse Anna had lived alone in her own flat. After moving into the townhouse she rented out her flat.

On 11 March 2000 Anna sold her flat. She chose to treat the flat as her main residence from 5 February 1999 until she sold it, under the 'continuing main residence status after moving out' rule.

On 29 April 2024 Anna and Mark sold their townhouse.

Because of Anna's choice, Mark had a different main residence from Anna for the period 5 February 1999 to 11 March 2000. Therefore, Mark must either:

• treat Anna's flat as his main residence for that period, or
• nominate the townhouse as his main residence for that period.

If he chooses to treat Anna's flat as his main residence, a part of any capital gain Mark makes when he sells the townhouse will be taxable. He will not get an exemption for the townhouse for the period that he nominated Anna's flat as his main residence (that is, 5 February 1999 to 11 March 2000).

If Mark nominates the townhouse as his main residence, he qualifies for a full exemption on any capital gain he makes when it is sold because he owns 50% or less of it. However, because Mark and Anna had different main residences as a result of Mark's choice, and Anna owned more than 50% of the flat, her gain on the flat will only qualify for a 50% exemption for the period from 5 February 1999 to 11 March 2000.

Anna's capital gain on the townhouse for the period 5 February 1999 to 11 March 2000 is taxable.

End of example