main home exemption rules, residential properties

The bright-line test’s main home exemption rules have been amended for residential land acquired on or after 27 March 2021. From that date the exemption rules will not be applied on an all-or-nothing basis for those property purchases, but instead the exemption will apply only for the period during which the property is actually used as the owner’s main home.

The original all-or-nothing exemption rules were suitable for the shorter bright-line test period. However, now the period has been extended to 10 years for residential property acquired on or after 27 March 2021 and therefore some of the gain on disposal of a home could be taxed.

For example, under the new rules, a person will have to pay tax under the bright-line test for a property that was rented out for three years even if they also used it as their main home for four years.

A full exemption will now only apply where a property is used as the owner’s main home for the full bright-line period. But there is a 12-month buffer, for the days when the property is not used as the main home thus allowing those days to still be treated as main home days, if:

  1. The number of non-main home days total 365 days or less; and
  2. The non-main home days are immediately before or after a period where the property is used as the person’s main home.
Amendments To Main Home Exemption Rules: Case Study

Jonathan purchases a property in 2023 and lives in it for five years before renting it out for three years. He sells the property in 2031. Under the original rules, Jonathan would have qualified for the main home exemption as the property was his main home for more than 50% of the time of ownership. However, the amendments mean that the main home exemption only partially applies as the property was not Jonathan’s main home for the full ownership period, which totalled eight years. For tax purposes, his income from the sale of the property will be reduced to reflect the five years that the property was his main home.

Please contact us if you have questions regarding the main home exemption rules for the bright-line test for residential property.