Since March 2020 and during the COVID-19 pandemic, a client spent 16 months living in a home he owns in rural  Victoria in order to attend to business interests he has there.  During this time, his wife continued to live in their Melbourne  home (where they have lived since their marriage).

In this situation, do they  lose their CGT main residence exemption on one or both houses? 

Assuming the rural Victorian home  is considered to be the husband’s  “main residence” during the period he  occupied it (see below), then this is correct. 


The rule in s 118-170 of the Income  Tax Assessment Act 1997 (ITAA  1997) prevents two dwellings  from qualifying for the CGT main  residence during the same period  where one dwelling is the main residence of one spouse in that  period and the other dwelling is the  main residence of the other spouse  in that period. 

In this case the client and his wife must either: (a) choose one of the  dwellings as the main residence  for both of them for the period;  or (b) each nominate the different dwellings as their main residences for the period. 

If they both choose one of the homes as the main residence for both of them (eg, the Melbourne  home) this will mean the rural Victoria home will not be entitled to any CGT main residence exemption for this period. This presumably  means that it will continue to be fully subject to CGT, while the  Melbourne home will prima-facie remain entitled to the full CGT main residence exemption. 

On the other hand, if they each  nominate the different homes as  their main residences, then they split  the CGT main residence exemption  between them for the period  that they both qualified as main residences of both homes – which, in  effect, results in a 50/50 split of the  exemption between the two homes. 

Specifically, these splitting rules state that if one spouse’s interest in the  home that they nominate was a 50% or less interest in the dwelling, then that home is taken to have been that spouse’s main residence during the whole of the overlapping period –  but only in respect of that 50% or less interest.  

Otherwise, if the interest in the home nominated by the spouse is greater than 50%, then that home is taken to have been that  spouse’s main residence for half the  overlapping period. (This occurs via the rule in s 118-185 which provides  that a partial CGT exemption applies where a dwelling, or interest in it, does not qualify as a taxpayer’s main residence throughout their ownership period.) 

And the same rule applies (in a  dovetailing fashion) to the client’s wife in respect of the home she nominates. 

So, let’s assume the husband owns 100% of the rural Victorian home and  he nominates that home, and the  wife nominates the Melbourne home, which they jointly own.  

In this case, because the husband’s interest in the home he nominates is  greater than 50% then it will be taken to have been his main residence  or half the period he occupied it as his main residence (ie, for eight  months out of 16-month period). 

On the other hand, in relation to the Melbourne home that the wife nominates, she gets a full exemption in respect of  her 50% interest in the home for the 16-month overlapping  period, while the husband gets no exemption in respect of his 50%  interest in that period. 

See also the example in s 118-170  for further clarification of this rule. 

Nomination rule  

Other things to note about the  nomination rule are as follows: 

• a nomination can be made in  respect of a dwelling that is  deemed to be a main residence  under the absence concession  (see TD 92/173);  

• a spouse need not have an  ownership interest in the dwelling in order nominate it as  their main residence (see ATO ID  2003/785); and 

• where one of the dwellings is pre-CGT and the other post CGT, there is nothing to prevent  the spouses nominating the  post-CGT dwelling as their main residence to preserve the CGT  exemption on both. 

When does a dwelling qualify as a main residence? 

Importantly, whether a dwelling  owned by one spouse qualifies as his or her main residence is a question of fact. It depends upon various matters, such as the length of occupation, intention, postal address etc. (See former TD 51).  

Also, perhaps in the COVID-19 period, the ATO may adopt a more lenient view of what is a main residence to mitigate any adverse outcomes from applying this rule. 

Meaning of spouse 

The rule in s 118-170 only applies  to spouses (and specifically  excludes spouses living permanently and separately  apart). Note, a spouse also  includes a spouse under a de facto relationship (s 995-1 definition)  and also spouses in a same-sex  relationship (as defined in terms  of a relationship registered under a relevant State or Territory law  or one that arises where the  parties live together on a genuine  domestic basis: see s 960-252 of  the ITAA 1997). 

If this article raises questions for you please contact your friendly TSP team for advice on this matter, call on 49 264155 or reach out via email on