It was 28 June, the final business day of the financial year.
Tom and Lisa sat in their solicitor’s office, signing the last of the papers to sell their family home. Their divorce had been messy and emotional, and both just wanted it over. The property settled that afternoon, the money hit their accounts, and they each walked away thinking the worst was finally behind them.
But months later, a tax bill arrived and it was brutal…
Why? Because in their rush to separate and sell, Tom and Lisa had stumbled headfirst into one of the most misunderstood areas of Australian tax law: the 6-year capital gains tax (CGT) exemption rule.
Here’s their story:
Tom had bought a one-bedroom unit for $300,000. Years later, he sold it for $380,000, making a gain of $80,000. Lisa owned a small investment unit she’d bought for $350,000. She sold it for $420,000, making a gain of $70,000. Together, they purchased their family home for $900,000, which had grown in value to $1.6 million. Both earned $170,000 salaries.
When they sold their units, each applied the 6-year CGT exemption rule. That meant:
- Tom avoided ~$18,800 in CGT.
- Lisa avoided ~$16,450 in CGT.
They collectively saved around $35,000. At the time, it felt like a smart tax move. However… when the family home was sold during their rushed divorce settlement, the numbers flipped.
Example Timeline
- 2012: Tom buys Unit A for $300,000 and lives in it.
- 2014: Lisa buys Unit B for $350,000 and lives in it.
- 2016: They meet, move in together, and buy a family home for $900,000. They both move out of their units and rent them.
- 2016–2021: Units A and B are rented. Both Tom and Lisa elect to treat their unit as their main residence under the 6-year rule.
- 2021: Tom sells Unit A for $380,000 (gain $80k, fully exempt under 6-year rule). Lisa sells Unit B for $420,000 (gain $70k, fully exempt under 6-year rule).
- 2025: Their relationship ends. They sell the family home for $1.6m.
Why This Causes Problems
Because Tom and Lisa each claimed their units as their main residence under the 6-year rule between 2016–2021, the family home was not their main residence for those years.
When sold in 2025, a portion of the $700,000 gain on the family home is exposed to CGT. Because they rushed the sale to settle on 28 June 2025, the whole capital gain is stacked on top of their $170k salaries in that year — pushing them into the highest tax bracket for part of the gain – OUCH!
If Tom and Lisa had instead paid tax on the small unit gains back in 2021 (say $18k–20k each), the family home would have stayed fully exempt.
Or, if they had delayed the family home settlement until July 2025, the gain would fall in a new financial year — and either Tom or Lisa may have had reduced income after separation, lowering their tax bill.
What They Could Have Done Differently
The saddest part? This was preventable. How?
1. Time the Sale Wisely
Because the home settled on 28 June, the entire taxable gain was stacked onto their already high incomes for that year.
If they had settled in July, the gain would have fallen into a new financial year. One of them may have had a lower income post-divorce (reduced hours, job change, or time off), meaning a far smaller tax bill.
2. Choose the Right Exemption
Instead of protecting their small units, they could have:
- Paid $18k–$20k tax each at the time, and
- Preserved the exemption for the family home.
That choice alone would have saved them well over $120,000 net.
3. Pre-Divorce Advice
With the right guidance, they could have:
- Structured the property transfer so one spouse kept the exemption, or
- Considered a spousal rollover arrangement, avoiding CGT altogether at the time of separation.
4. Super Contribution Strategies
Tom and Lisa could have contributed part of the sale proceeds into super as deductible contributions, reducing taxable income and the sting of the capital gain.
Rushing cost Tom and Lisa more than $100,000!
- Timing matters. Selling on 28 June was the worst possible choice.
- Don’t waste your exemption. Using the 6-year rule on small properties can backfire badly.
- Life events don’t stop tax law. Divorce and urgency don’t excuse you from big tax consequences.
- Think long-term. A little advice before signing papers can save six figures.
The 6-year CGT exemption is a powerful tool, but it can be a dangerous trap if you don’t think ahead. Tom and Lisa’s story shows how rushing through property sales without planning; especially during something as stressful as divorce, can lead to devastating financial consequences.
If you’re selling property, particularly around financial year-end or during separation, get advice before you sign anything. A short pause to plan could save you hundreds of thousands in tax and a lot of regret later.
