Patrick and Lilly needed advice from chartered accountant GAIL FREEMAN about the tax implications of having moved into their coastal dream home in Wollongong then selling their Canberra main residence, which they had briefly rented out.

Patrick and Lilly bought and moved into their $900,000, newly renovated Canberra home in February 2021. It was their main residence.

In February 2023, Patrick was promoted and they moved to Wollongong, initially renting an apartment. They also rented out their Canberra home.

They bought a coastal home for $1.4 million in July, 2024, and loved the coastal lifestyle so much they sold their Canberra property in February 2025 for $1.3 million.

“We are up for tax on a capital gain of $400,000, I think!” Patrick told me, adding that they needed advice on the exemptions available.

“There are eligibility rules for certain exemptions to apply in relation to the sale of your prior main residence,” I explained.

they are eligible for a partial main-residence exemption on the gain, as they occupied the dwelling immediately after acquisition and did not rent it out for the first two years.

“You did not buy another property until July 2024 so there is a 6 month period when you owned two properties and you can possibly claim the main residence exemption on both properties.

“In order for this ‘six-month rule’ to apply, you need not to have rented the first property in the 12 months immediately preceding the purchase of the second property. This is not the case here, so you are not eligible for the six-month exemption.

“However the ‘six-year rule’ will apply. If your main residence is used to produce rental income for a maximum of six years you can choose to treat it as your main residence as long as another property is not being claimed as your main residence at the same time.”

I advised the young couple that when declaring a property as a main residence, they should also consider unrealised capital gains on any other properties they concurrently owned.

“You bought your Canberra main residence for $900,000 in February 2021,” I said.

“You sold it in February 2025 for $1.3 million; potentially there is a capital gain of $200,000 each.

“However, you lived in it as your main residence, so until July 2024 you can utilise the main residence exemption under the six-year rule and it is capital gains tax free.

“I would recommend that you claim Wollongong as your main residence from July 2024.”

On my advice, they had obtained a valuation on their main residence from a licensed valuer. This allowed them to disregard the capital gain made between February 2021 and July 2024.

“Accordingly, based on a valuation of $1.25 million you will only pay capital gains tax of a maximum of $20,000,” I said.

Visibly relieved, Patrick and Lilly thanked me for my advice.

Column compiled with the assistance of accountant Chetan Chopra.

If you need clarification on capital gains tax or any other tax related matter contact the expert team at Gail Freeman on
02 6295 2844, email [email protected] or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.

News all day, every day at CityNews.com.au.