Capital gains tax when you sell your home: the main residence exemption explained

When you sell your home in Australia you generally pay no capital gains tax if it was your main residence for the whole time you owned it, you did not use it to earn income, and the land is 2 hectares or less. If you rented it out, ran a business from part of it, or lived elsewhere for some of the time, part of the gain may be taxable. The six-year rule can keep a home exempt for up to six years while you rent it out after moving out. Foreign residents at the time of sale generally cannot claim the exemption at all, apart from narrow life-event exceptions. Where a gain is taxable, Australian resident individuals who held the property for at least 12 months can usually apply the 50% CGT discount.

This guide is part of the cost of selling a house in Australia section. The arithmetic of a partial exemption is in the partial exemption worked example.

When the full exemption applies

You get the full main residence exemption if all of these are true:

• You are an Australian resident for tax purposes when the contract is signed (the CGT event).
• The dwelling was your main residence for the whole period you owned it. The ATO looks at facts such as whether you and your family lived there, your belongings were there, mail went there and you were on the electoral roll at that address.
• You did not use it to produce assessable income, such as renting it out or running a business from a dedicated part of it.
• The land around the home is 2 hectares or less.

If you moved in as soon as practicable after settlement, the home can be treated as your main residence from when you acquired it.

When only part of the gain is exempt

When a home that was first your main residence is first used to produce income after 20 August 1996, and you would only get a partial exemption, you are treated as having acquired it at its market value at that time. This often helps, because only the growth after you started renting it out is taxed. Get a valuation when you first rent the home out.

The six-year absence rule

If you move out and rent your home out, you can choose to keep treating it as your main residence for up to six years for each period of absence. If you move back in and leave again, a new six-year period starts. While you claim the exemption on that home, you generally cannot treat another dwelling as your main residence, except for the six-month overlap when moving. If you did not rent it out, the absence can be unlimited.

Foreign residents

Since the law changed in 2019, with transitional rules that ended on 30 June 2020, a person who is a foreign resident when they sign the sale contract cannot claim the main residence exemption unless a life event applies: the person (or their spouse or child under 18) had a terminal medical condition, or died, or the CGT event happened because of a divorce or separation, and the person had been a foreign resident for six years or less. Australian expats who plan to sell their former home should get advice before signing a contract while overseas.

Foreign residents also lose the 50% discount for growth after 8 May 2012, and the buyer will withhold 15% of the price unless the ATO grants a variation: see foreign resident CGT withholding.

How selling costs reduce a taxable gain

Where any part of a gain is taxable, your cost base includes:

1. The purchase price
2. Incidental costs of buying and selling: stamp duty, conveyancing and legal fees, agent commission, advertising, valuation and building inspection costs
3. Capital improvements, such as an extension (but not repairs claimed as deductions)
4. For a home that was never income-producing, holding costs such as interest and rates generally do not count

Example: a home bought for $600,000 with $25,000 of duty and buying costs, sold for $1,000,000 with $28,000 of commission, marketing and legal fees, gives a gain of $1,000,000 - $28,000 - $625,000 = $347,000. If 20% of the ownership period is taxable, the taxable portion is $69,400, halved to $34,700 by the 50% discount (for a sale contract signed before 1 July 2027). For contracts from 1 July 2027 the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 generally replaces the discount for individuals with indexation of the cost base for growth after 30 June 2027 and adds a 30% minimum tax on most capital gains; growth up to that date keeps the 50% discount, and the main residence exemption itself is unchanged. See the partial exemption worked example. You can test variations with the CGT partial exemption calculator.

Records to keep

• Purchase contract, settlement statement and duty assessment
• Invoices for improvements
• Dates you moved in and out, and lease agreements
• A market valuation at the date the home was first rented out, if relevant
• Sale contract and settlement statement, including commission and legal fees

Frequently asked questions

Do I need to report the sale of my home in my tax return?

If the gain is fully exempt, generally no. If any part is taxable, report the net capital gain in the return for the year the contract was signed, not the year of settlement.

Can a couple each have a different main residence?

Spouses who live in different homes must choose one home as the main residence for both, or split the exemption between the two homes.

Does building a home on vacant land count?

You can choose to treat land as your main residence for up to four years before the home is built, if you move in as soon as it is finished and live there for at least three months.

When should I see a tax agent?

When the home was rented out, used for business, sits on more than 2 hectares, was inherited, or you are or have been a foreign resident. These cases have rules not covered here.

Official sources

• Australian Taxation Office — main residence exemption, six-year rule and CGT records
• Tax Practitioners Board — check that a tax agent is registered
• Federal Register of Legislation — Income Tax Assessment Act 1997, Subdivision 118-B