4.6.3.80 Exempting the principal home - sale proceeds (for homes sold between 01/07/2007 & 31/12/2022)
Note: The information on this page applies to homes sold between 1 July 2007 and 31 December 2022. For information on the sale proceeds exemption for homes sold on or after 1 January 2023, see 4.6.3.90.
Summary
This topic covers the following and applies to homes sold between 1 July 2007 and 31 December 2022:
- the definition of principal home sale proceeds
- when the principal home sale proceeds exemption can apply
- the 12-month exemption of principal home sale proceeds
- the exemption of principal home sale proceeds beyond 12 months, and
- income test rules for sale proceeds held in a financial investment.
Policy reference: SS Guide 4.6.3.30 Defining the principal home
Definition of principal home sale proceeds
Principal home sale proceeds can include:
- funds from the sale of the principal home that are held in a financial investment, which the person intends to be applied to purchase, build, rebuild, repair or renovate a new principal home, and
- payments that have been applied to build, rebuild, repair or renovate a new principal home.
Intention to apply sale proceeds
Only the value of principal home sale proceeds that are intended to be used to purchase, build, rebuild, repair or renovate a new principal home can be exempt under the assets test.
Example: Geoff sells his principal home for $650,000. Geoff intends to purchase a new principal home for $550,000 and to spend $100,000 on establishing a new business venture. Given Geoff only intends to use $550,000 of the sale proceeds to purchase a new principal home, the total amount of sale proceeds that can be exempt from the assets test is $550,000. The $100,000 is NOT exempt from the assets test.
Application of sale proceeds
Only the value of principal home sale proceeds that have been applied to build, rebuild, repair or renovate a new principal home can be exempt under the assets test. This could include the value of:
- the residence or partially finished residence that is in the process of being built, rebuilt, repaired or renovated
- a structure on the land to the extent that the structure was built before the person began applying the sale proceeds, and
- land on which the new principal home is to be built, rebuilt or repaired. Land that was purchased prior to receiving the sale proceeds (whether owned outright or mortgaged) can be exempt once the principal home sale proceeds have been received.
Example: Sally purchased a block of land for $150,000 prior to selling her principal home. Sally sold her principal home and $750,000 was received on 30 July 2017 at settlement which she used to pay off the mortgage on the block of land. The balance of the settlement money was placed into a bank account and Sally intends on using this money to build a home on the block of land. In this case the block of land and the money in the bank account together can be exempt from 30 July 2017.
The maximum total asset value that may be exempt is the value of the proceeds of the sale of the former principal home.
Example: The maximum asset value that Sally can have exempted is $750,000, which includes the value of the block of land.
For couples, where one member of the couple intends to or has applied the proceeds, then their partner will also be regarded as intending to apply, or having applied the proceeds.
Act reference: SSAct pre-1 January 2023 section 1118(1B) Application of proceeds of sale of principal home
When the principal home sale proceeds exemption can apply
The principal home sale proceeds exemption only applies if:
- a person sells their principal home, and
- the person does not have a right or interest in their principal home, or
- that right or interest does not give the person reasonable security of tenure.
Explanation: A person can only gain access to the principal home sale proceeds exemption if they do not have another principal home.
If a person has sold their principal home and is living in another home they own, they CANNOT gain both a principal home exemption on the home they are currently living in as well as an exemption on the principal home sale proceeds. In this situation, either the home they are currently living in OR the principal home sale proceeds will be exempt from the assets test, but not both. The one which is exempt depends on what property the person intends to be their new principal home.
Example: Joan sells her principal home and intends to use the proceeds of sale to build a new home. Joan moves into another home that she owns. Joan cannot gain a principal home exemption on the home she is living in as well as having the sale proceeds exempt from the assets test. In this case, Joan intends her principal home to be the one she builds with the sale proceeds. Therefore, given Joan does not intend the home she is currently living in to be her principal home, it will be assessed as an asset. The sale proceeds that will be used to build a new principal home will be exempt from the assets test.
Act reference: SSAct pre-1 January 2023 section 1118(1B) Application of proceeds of sale of principal home
Exemption of principal home sale proceeds - 12 months
If a person sells their principal home prior to 1 January 2023, the portion of the proceeds that will be used for the new principal home can be exempt from the assets test for up to 12 months.
When the principal home sale proceeds exemption starts
The principal home sale proceeds are exempt from the date of settlement. The person continues to be assessed as a homeowner during the exemption period.
Act reference: SSAct section 11(4)(c) Homeowner
When the principal home sale proceeds exemption ends
The principal home sale proceeds exemption ends when either:
- the new principal home has been purchased, or where the sale proceeds were intended to be used for building, rebuilding, repairing or renovating the new principal home, the build, repair or renovation of the new principal home have been completed, or
Example: The settlement on a new home purchase occurs.Example: The person moves into their new home.
- the person ceases to have an intention to apply the proceeds to purchase, build, rebuild, repair or renovate a new principal home
whichever occurs first.
Example: On 10 January 2017, Mr and Mrs Jones sold their principal home with the intention of purchasing a new principal home. However, on 20 June 2017, Mr and Mrs Jones decided they no longer wished to purchase a new principal home but instead purchase a campervan and travel around Australia. The principal home sale proceeds exemption ceased on 20 June 2017, the date when the intention to purchase a new principal home ceased.
If a person has sold their principal home by instalments or the payment is deferred, ONLY those payments received within 12 months of the sale are exempt from the assets test.
Act reference: SSAct pre-1 January 2023 section 1118 Certain assets to be disregarded in calculating the value of a person's assets, section 1118(2) Application of proceeds of sale of principal home
Exemption of principal home sale proceeds beyond 12 months
For homes sold between 1 July 2007 and 31 December 2022 inclusive, if the person has not been able to purchase, build, rebuild, repair, or renovate a new principal home within 12 months, the principal home sale proceeds CAN be exempt from the assets test for up to another 12 months, subject to the person meeting certain criteria.
The maximum possible sale proceeds exemption period for homes sold between 1 July 2007 and 31 December 2022 inclusive, is 24 months.
Act reference: SSAct pre-1 January 2023 section 1118(2B) Application of proceeds of sale of principal home
Criteria to gain extended exemption
To gain an extended principal home sale proceeds exemption for up to 24 months, the person must have a continuing intention to apply the proceeds of the sale to purchase, build, rebuild, repair or renovate a new principal home and also have:
- made reasonable attempts to purchase, build, rebuild, repair or renovate their new principal home
- been making those attempts within a reasonable period after selling the principal home, and
- experienced delays beyond their control in purchasing, building, rebuilding, repairing or renovating their new principal home.
All of the above criteria MUST be met. If one of the above criteria is not met then the person CANNOT gain the extended principal home sale proceeds exemption for up to 24 months.
Making reasonable attempts
A person would be considered to be making reasonable attempts to purchase, build, rebuild, repair, or renovate their new principal home if they entered into some form of agreement including:
- signing a contract of sale to purchase a house
- purchasing or signing a contract to purchase a block of land to construct a house on
- signing a contract with a builder to construct or rebuild a house, or house and land package, or
- contracting or accepting a quotation from a tradesman to undertake repairs or renovations.
The person will be required to provide some documentary evidence (when the extended exemption period is being requested) to demonstrate that they have been making reasonable attempts.
Example: A copy of the agreement/acceptance of quotation to rebuild a new home.
Exception: In special circumstances a person may be considered to be making reasonable attempts to purchase, build, rebuild, repair, or renovate their new principal home if they have been unable to enter some form of an agreement. These circumstances include where the person has:
- experienced delays relating to the purchase, construction, rebuilding, repair or renovation of the new principal home
Example: Delays in gaining building approval from the local shire council that is required prior to entering into an agreement with the builder.
- been absent from the place they intend to purchase, build, rebuild, repair or renovate their new home due to reasons beyond their control
Example: Caring for a close family member in a separate location to the place where they were to build their new principal home.
- had changes in health that have had a major bearing on the individual's circumstances, or
Example: Being hospitalised for an extended period.
- been unable to gain a commitment/enter into an agreement with a builder because demands in the building industry are stretched in a particular geographic area.
Example: After a natural disaster.
The person will be required to provide some documentary evidence for special circumstances to apply.
Example: A copy of correspondence from the local shire council.
Making reasonable attempts within a reasonable period
The person must have made reasonable attempts to purchase, build, rebuild, repair or renovate a new principal home within a reasonable period after selling the principal home.
Explanation: The person must have taken action towards entering into some form of agreement to purchase, build, rebuild, repair, or renovate a new principal home, within 6 months from the date of the sale. Taking action could include: plans being developed by an architect or draftsman, obtaining quotes from builders, attending open houses, contacting real estate agents about house and land packages available.
The person may be required to provide documentary evidence (when the extended exemption is being requested) to demonstrate that they have been making attempts within a reasonable time period.
If a person has NOT made attempts within a reasonable time period, that is, 6 months from the date of sale, the extended exemption CANNOT apply.
Example: Ann and Jeremy sold their principal home on 20 December 2018. They went overseas and came back to Australia on 30 October 2019. They entered into a contract of sale to purchase a new home on 15 December 2019 with settlement due on 15 March 2020. In this case, although Ann and Jeremy made reasonable attempts (that is, they entered into a contract of sale to purchase a new home within 12 months) they did not make those attempts within a reasonable period (that is, 6 months) from the date of sale. In this case, Ann and Jeremy cannot gain an extended exemption period for the principal home sale proceeds.
Experienced delays beyond their control
A person would be considered to have experienced delays beyond their control if they have been unable to commence or complete the purchase, construction, repair, rebuilding, or renovation of their home due to delays in the building industry.
Example: Mr and Mrs Smith sold their principal home in October 2007. They purchased a house and land package in January 2008 but were unable, due to delays with developers, to commence building on the land until June 2008. The builder then experienced further delays and advised that completion would not occur until March 2009. In this case, given Mr and Mrs Smith:
- made reasonable attempts (that is, buying a block of land and signing a contract to build a home within 6 months)
- made those attempts within a reasonable period (buying a block of land within 6 months), and
- experienced delays beyond their control (developer and builder delays)
they would gain access to the extended exemption.
Determining a time period for the extended exemption
A person can only gain a maximum principal home sale proceeds exemption period of 24 months for homes sold between 1 July 2007 and 31 December 2022 inclusive. This period includes both the original 12 months and up to a further 12 months' extended exemption.
The exact length of time that the extended exemption period will apply for, will depend on the special circumstances having regard to when the person anticipates, or the contract stipulates, the purchase, building, rebuilding, repair or renovation of the new home will be complete.
Example: George sold his principal home on 2 August 2007. George intended to purchase a block of land and build a new principal home on it. On 20 January 2008 George settled on a house and land package. George's 12 months exemption would take him up until 1 August 2008. However, due to delays in the building industry, George's builder revised the estimated completion date to end October 2008. In this case, George may meet the criteria for the extended principal home sale proceeds exemption. The extended exemption period may apply until the end of October 2008.
When the extended exemption ends
The extended principal home sale proceeds exemption ends when either:
- the person ceases to have an intention to apply the proceeds to purchase, build, rebuild, repair or renovate a new principal home
- a new principal home is purchased, or where the sale proceeds were intended to be used for building, rebuilding, repairing or renovating the new principal home, the build, repair or renovation of the new principal home is complete, or
- the determined extended time period expires
whichever occurs first.
Act reference: SSAct pre-1 January 2023 section 1118(1B) Application of proceeds of sale of principal home
Income test rules for sale proceeds held in a financial institution
Any amount of the principal home sale proceeds that is held in a financial investment is subject to deeming.