A married couple jointly own their home, bought 10 years ago for $600,000 and now worth $1.2 million. They move to a new home, which they treat as their main residence, and rent out the old one. What are the CGT consequences when they later sell the old home?
Correct Answer
C) A partial main residence exemption, with the cost base reset to market value when first rented
Because the home was first used to produce income after 20 August 1996, section 118-192 treats the couple as having acquired it at its market value when it was first rented. The gain up to that date is effectively exempt, and only the growth after it is taxable, with the 50% CGT discount available if held more than 12 months. The six-year absence rule does not help here because they treat the new home as their main residence.
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