5. Main residency exemption and nursing homes

My client has moved into a nursing home, can I still access the CGT exemptions on their home when they die?

Current at 1 January 2022

5. Main residency exemption and nursing homes

My client has moved into a nursing home, can I still access the CGT exemptions on their home when they die?

Current at 1 November 2021

This is a very frequently raised question that is not well understood.

To provide a bit of background, a taxpayer has the right to elect to continue to treat a property as their main residence during a period that they are absent from the property.

I recall years ago my former professor of Tax 101 explaining that this provision was initially intended to apply to diplomats and military personnel, who are often required to serve abroad or away from their home, and ended up renting out their residence during an extended period of absence. He explained that our legislators considered that it would not be equitable if Australia subsequently taxed them on the capital growth of their home during a period that they were absent when providing service to their country.

The exemptions that my professor was referring to still exist today and are twofold. Essentially, the Act allows a taxpayer’s main residence to be exempt from capital gains tax (CGT) indefinitely if it is not being used to produce assessable income (i.e. not rented), or for up to a maximum of 6 years if it is being used to produce income. The law however permits a taxpayer to only have one main residence at any point in time.

This is a particularly useful provision when it comes to older clients moving into a nursing home who may desire to retain ownership of their home. So in line with the above, if the residence was not generating income, but rather left vacant, and used for say weekend visits, or to accommodate the children when they visited their parent, the property could retain its main residence status indefinitely. [If the property is rented, it is important to consider whether that should be allowed to continue for more than six years – that is, will the tax on any capital gain outweigh the net rental income].

While technically there is no provision that allows a legal personal representative to choose to treat the deceased’s home as their main residence while they were not living there, the ATO practice is to allow such a choice to be made.

 

Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.

 

 

This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning.  Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.