Can You Have Two Primary Residences?

Can You Have Two Primary Residences in Australia?

Today, we’re looking at a common question: Can you have two primary residences in Australia? Understanding the rules around primary residences can help you maximise your tax benefits and avoid potential pitfalls. Let’s break it down in a simple, instructional, and entertaining way.

Understanding Primary Residences

A primary residence, also known as a main residence, is the home where you and your family live most of the time. It’s crucial for determining eligibility for certain tax benefits, such as the main residence exemption from Capital Gains Tax (CGT).

Can You Have Two Primary Residences?

In general, you can only have one primary residence at a time. However, there are specific circumstances where you might be able to treat two properties as your primary residence temporarily.

The Six-Month Overlap Rule

The ATO allows a six-month overlap rule, which permits you to treat two properties as your primary residence for up to six months under certain conditions. Here’s how it works:

1. Buying a New Home:

   • If you acquire a new home before selling your old one, you can treat both as your primary residence for up to six months.

2. Conditions to Meet:

   • The original dwelling must have been your main residence for a continuous period of at least three months during the last 12 months you owned it.
   • The property must not have been used to produce income (e.g., rented out) during any part of the 12-month period when it was your main residence.

Example Scenario

Let’s say you bought a new house on 1 January 2024 and sold your old house on 1 June 2024. You can treat both properties as your primary residence for the six-month overlap period from 1 January to 1 June.

Common Traps to Avoid

1. Incorrectly Claiming Two Residences:

   • Ensure you meet the conditions for the six-month overlap rule to avoid issues with the ATO.
   • Example: John tried to claim two primary residences for a year without meeting the conditions. The ATO disallowed his claim, leading to a CGT liability.

2. Using Property for Income:

   • If either property is used to produce income during the overlap period, you may not be eligible for the six-month rule.
   • Example: Emma rented out her old house while moving into the new one. The ATO disallowed the overlap claim due to income production.

3. Not Keeping Records:

   • Keep detailed records of your property transactions and living arrangements to substantiate your claims.
   • Example: Tom didn’t keep records of his move dates and property usage, leading to disputes with the ATO.

Examples of Non-Deductible Expenses

1. Personal Travel Costs:

   • Travel costs for personal reasons are not tax deductible.
   • Example: Emma tried to claim her holiday travel expenses as a tax deduction. The ATO disallowed it as it was a personal expense.

2. Home Maintenance for Personal Use:

   • Maintenance costs for personal enjoyment are not tax deductible.
   • Example: Mike claimed the cost of renovating his personal garden. The ATO disallowed it as it was for personal use.

3. Initial Employment Costs:

   • Costs incurred to get a job, such as resume preparation or job application fees, are not tax deductible.
   • Example: Jane claimed the cost of preparing her resume. The ATO disallowed it as it was an initial employment cost.

Gotax Piece of Tax Advice

Plan Your Moves Wisely: When buying or selling properties, plan your moves to take full advantage of the six-month overlap rule. Ensure you meet all the conditions and keep detailed records to substantiate your claims. If in doubt, consult a tax professional to guide you through the process and provide tailored advice for your situation.

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