Main Residence CGT Exemption — Selling Your Home Tax-Free in Australia (2026)

Selling your home is one of the few capital transactions in Australia that may be entirely exempt from capital gains tax (CGT). The main residence CGT exemption is one of the most valuable tax concessions available to Australian property owners — but it has important conditions and limits.

The Key Rule

If you have lived in a property as your main residence for the entire period you owned it, any capital gain on sale is fully exempt from CGT. You pay no tax on the profit.

This applies regardless of how large the capital gain is — a property purchased for $300,000 and sold for $1,500,000 is fully exempt if it was your main residence for the whole ownership period.

What Qualifies as Your Main Residence?

The ATO considers several factors when determining if a property is your main residence:

• Whether you and your family lived there
• Whether your personal belongings were there
• Whether it was your address for mail, electoral roll, and bills
• Whether it was your address with your employer
• How long you lived there and the extent to which you used it as a home

You can only have one main residence at a time (with a brief exception during transitions between properties — see below).

Full Exemption — When It Applies

The full exemption applies when:

1. You owned the property for the entire ownership period and it was your main residence throughout
2. The property was not used to produce assessable income (not rented, not used for business) at any point during your ownership
3. The land area is 2 hectares or less

Partial Exemption — When CGT Does Apply

If any of the following apply, only a partial exemption is available — meaning some capital gain is taxable:

Used partly for income production (e.g., rented out):

$$\text{Taxable proportion} = \frac{\text{Days used as investment}}{\text{Total days owned}}$$

Example: Property owned for 10 years (3,650 days). Rented for 2 years (730 days) while you lived elsewhere.

$$\text{Taxable portion} = \frac{730}{3{,}650} = 20%$$

20% of the capital gain is assessable. The remaining 80% is exempt. If the asset was held for more than 12 months, the 50% CGT discount applies to the assessable portion.

Land exceeds 2 hectares: Only 2 hectares of land adjacent to the dwelling is eligible for the exemption.

The 6-Year Absence Rule

This is one of the most useful features of the main residence exemption. If you move out of your main residence and rent it out, you can continue to treat it as your main residence for CGT purposes for up to 6 years, provided:

• The property was your main residence before you moved out
• You do not treat any other property as your main residence during this period

After 6 years of renting, the absence rule expires and CGT accrues on any further time as an investment.

Example:

• Bought property in 2012; lived in it as main residence
• Moved out and rented it in January 2018
• Sold in December 2023 (5 years, 11 months of renting)
• The 6-year rule covers the full rental period — full CGT exemption applies

Transitional Overlap Period — Owning Two Homes Briefly

When moving from one home to another, you may briefly own two properties. Both can be treated as your main residence for up to 6 months if:

• The new home becomes your main residence
• The old home is sold within 6 months

If the old home sells within 6 months, no partial CGT applies for the overlap period.

When CGT Always Applies — Common Situations

Calculating CGT When the Exemption Is Partial

Step 1: Calculate the total capital gain:

$$\text{Capital gain} = \text{Sale price} - \text{Cost base}$$

Cost base includes: purchase price + stamp duty + legal fees + renovation costs (capital improvements) − any depreciation claimed.

Step 2: Apply the taxable proportion:

$$\text{Assessable gain} = \text{Capital gain} \times \text{Taxable proportion}$$

Step 3: Apply the 50% CGT discount (if held 12+ months):

$$\text{Net assessable gain} = \text{Assessable gain} \times 50%$$

Step 4: Add net assessable gain to your assessable income for the year. Tax is calculated at your marginal rate.

Frequently Asked Questions

I bought a property, lived in it for 2 years, then rented it for 4 years. Is the full 6-year rule available?

Yes — if you never established another main residence during the 4-year rental period. The 6-year absence rule runs from when you first moved out, and you have not exceeded 6 years. Full exemption applies.

My property has a granny flat that I rent out. Does this affect the main residence exemption?

Potentially, yes. If the granny flat is rented out and constitutes a separate income-producing area of the property, a partial exemption may apply — proportionate to the floor area rented vs the total property. ATO guidance on this point is specific — speak with a registered tax agent.

I inherited a property. Does the main residence exemption apply?

Inherited properties have specific CGT rules. Broadly, if the deceased was an Australian resident and the property was their main residence, and you sell within 2 years of death, CGT may not apply. Beyond 2 years, CGT applies on any gain during your ownership period. Complex rules apply — speak with a registered tax agent.

Related Articles

• Taxes Hub — Capital Gains Tax Australia
• Investment Property Tax Deductions
• Negative Gearing Explained
• Selling Your Home Hub

This article provides general information about the main residence CGT exemption in Australia. CGT rules are complex and depend on your specific circumstances and the history of property use. Always consult a registered tax agent before selling. Find one through MoneySmart.