Worked Cost Examples and Checklists
Partial main residence exemption: CGT worked examples when you rented out your home
Three worked examples of capital gains tax on a home that was rented out for part of the time, including the six-year rule and the market value rule, with the arithmetic shown.
When a home was your main residence for only part of the time you owned it, the taxable part of the gain is usually worked out by days: gain x days it was not your main residence / days you owned it. If you then qualify for the 50% CGT discount (Australian resident individual, owned at least 12 months), the taxable amount is halved. The discount applies to sale contracts signed before 1 July 2027; for later sales the rules change (see sales from 1 July 2027), and the examples below assume a contract signed before that date. Two rules change the answer: the six-year absence rule, which can keep a rented-out former home exempt for up to six years, and the market value rule, which treats you as buying the home at its market value on the day you first rented it out, if you lived in it first. The three illustrative examples below show each case.
This guide belongs to the net sale proceeds worked example section. The rules themselves are explained in the main residence exemption.
Example 1: rented out first, then lived in it
- Bought for $640,000, plus $30,000 of stamp duty and buying costs: cost base $670,000
- Rented out for 2 years, then lived in it for 8 years
- Sold for $1,100,000, with $30,000 of commission, marketing and legal fees, under a contract signed before 1 July 2027
| Step | Calculation | Result |
|---|---|---|
| Capital gain | $1,100,000 - $30,000 - $670,000 | $400,000 |
| Non-main-residence share | 2 years / 10 years | 20% |
| Taxable part before discount | $400,000 x 20% | $80,000 |
| After 50% discount | $80,000 x 50% | $40,000 |
$40,000 is added to your assessable income for the year the sale contract was signed. In the CGT partial exemption calculator, enter a gain of $400,000 and a taxable share of 10% (20% x 50%).
In practice the ATO apportions by days, so use the exact dates of settlement and the lease start dates, not rounded years. If you moved in as soon as practicable after settlement, the period before you moved in may still count as main residence; here the home was rented out deliberately, so it does not.
Example 2: lived in it, then rented it out for 4 years
- Bought in 2016 for $520,000 including buying costs; lived in it for 5 years
- Moved interstate and rented it out for 4 years, without treating another home as a main residence
- Sold for $900,000 with $22,000 of selling costs
Because the rental period is less than six years, you can choose to treat the home as your main residence for the whole absence. The gain of $900,000 - $22,000 - $520,000 = $358,000 is fully exempt. The rental income was still taxable each year, and you cannot also claim another home as your main residence for the same period (apart from a six-month overlap when changing homes).
If instead you had bought a new home in the other state and lived in it, you would have to choose which home is your main residence for those years. Choosing the old home might leave the new home's gain for that period taxable later.
Example 3: lived in it, then rented it out for 10 years
- Bought in 2012 for $520,000 including buying costs; lived in it for 3 years
- Rented it out from 2015 for 10 years; market value when first rented out: $650,000
- Sold in 2025 for $1,200,000 with $30,000 of selling costs
The market value rule applies. You lived in the home first, it was first used to produce income after 20 August 1996, and you would get only a partial exemption. So you are treated as having acquired it for $650,000 on the day it was first rented out, and only days from then are counted.
| Step | Calculation | Result |
|---|---|---|
| Gain from the deemed acquisition | $1,200,000 - $30,000 - $650,000 | $520,000 |
| Exempt under the six-year rule | First 6 of the 10 rental years | 60% |
| Non-exempt share | 4 / 10 | 40% |
| Taxable before discount | $520,000 x 40% | $208,000 |
| After 50% discount | $208,000 x 50% | $104,000 |
Note that the market value rule is not optional. In this example most of the growth happened after the home was rented out, so the rule produced a larger taxable amount than apportioning over the whole 13 years would have ($650,000 x 4 / 13 x 50% = $100,000). In many cases where values rose strongly while the owner lived there, the rule helps. Either way, a valuation at the date the home was first rented out is essential evidence.
Sales from 1 July 2027
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 changes the treatment of the taxable part of a home's gain for CGT events (usually the contract date) on or after 1 July 2027:
- For individuals, the 50% discount generally no longer applies to growth after 30 June 2027. Instead, Australian residents can index the cost base for inflation for the period from 1 July 2027 (asset held at least 12 months). A qualifying new residential dwelling keeps a 50% discount.
- If you own the home on 30 June 2027, you are treated as selling and reacquiring it at market value then. The taxable part of the gain to that date is deferred until you actually sell and can still get the 50% discount; only growth after that date is taxed under the new rules. You can use an apportioning method instead of a valuation.
- Days the home is your main residence are left out of the new rules, so a home that was your main residence the whole time stays exempt.
- A 30% minimum tax on most capital gains applies to Australian resident individuals from 1 July 2027, unless they receive certain payments such as the age pension in that year.
Under the new rules, the second step in each example (halving the taxable part) would apply only to the part of the gain that accrued up to 30 June 2027. Ask a registered tax agent to model a sale that straddles that date.
What the tax could be
The taxable gain is added to your other income and taxed at your marginal rate plus the Medicare levy. A large gain can push part of your income into a higher bracket for that year. Contract timing matters: a contract signed on 30 June falls in a different income year from one signed on 1 July. Ask a registered tax agent to model the tax for your situation.
Records you need for these calculations
- Settlement statements for the purchase and the sale
- Lease agreements and dates the property was available for rent
- A market valuation at the date first rented out (Example 3)
- Invoices for capital improvements
- Proof of the dates you lived there
Frequently asked questions
Can I use the six-year rule if I was overseas?
Yes, if you remained an Australian resident for tax. If you became a foreign resident and sell while still a foreign resident, you generally cannot claim the main residence exemption at all, unless a life event applies, and the buyer will withhold 15% of the price: see foreign resident CGT withholding. The selling costs that go into the cost base are itemised in the net sale proceeds worked example.
Do selling costs reduce the gain in every example?
Yes. Commission, advertising and legal fees on the sale are included in the cost base in each example.
Does the 50% discount apply to companies?
No. Companies cannot use it; complying super funds get a one-third discount.
What if I rented out only a room while living there?
The share of floor area rented, for the period it was rented, may be taxable. The market value rule may also apply. Ask a tax agent.
Official sources
- Australian Taxation Office — main residence exemption, home first used to produce income and CGT discount
- Tax Practitioners Board — find a registered tax agent
