Understanding the family home six-month rule

It is generally accepted that an exemption to capital gains tax (CGT) applies to the disposal of the family home, or "main residence".

This means that in most cases you won't pay tax on any profit when you sell it. Typically the exemption usually applies for only one home at any given time.

But there is a rule in the tax law that allows for a taxpayer to have two main residences and still maintain that CGT-free status for both for a temporary period.

The "six-month rule" states that two properties can be claimed as a main residence at the same time when a taxpayer acquires a dwelling that becomes their new main residence before they dispose of the original dwelling.

This is a sensible allowance that recognises that sometimes you may not have sold your old residence by the time you move into your new one. Selling the old house may take longer than six months but the CGT exemption only holds for that long.

This concessional treatment is available up to the earlier of: six months after taking ownership of the new house or when you dispose of the old house.

There are a couple of conditions attached, though: the old house must have been your main residence for at least three months (as a continuous period) in the 12 months before disposal; and if it was not your main residence for any part of those 12 months, it can't have been used for income-producing purposes (i.e. it can't have been rented out) at all during that non-main-residence time.

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