Main residence exemption and the 6-year rule for CGT

Who qualifies for the main residence exemption

According to the ATO, your home is fully exempt from CGT if you are an Australian resident and the dwelling:

• has been the home of you, your partner and other dependants for the whole time you owned it
• has not been used to produce income: you haven’t rented it out, run a business from it, or bought it to renovate and resell ("flipping")
• is on land of 2 hectares or less.

What makes a property your main residence

There is no single test. The ATO looks at whether you and your family live there, your belongings are there, your mail goes there, it is your address on the electoral roll, and utilities are connected. A dwelling can be a house, apartment, strata unit, retirement village unit, caravan or houseboat, but a vacant block is never a main residence.

The exemption starts from settlement if you move in as soon as practicable. A delay caused by illness or another unforeseen circumstance, such as an unexpected overseas work assignment, doesn’t break it, provided you move in once the cause of the delay is removed. If the property is being rented to someone, it only becomes your home when you actually move in.

When you buy a new home before selling the old one, both can be exempt for up to 6 months, if you lived in the old home for a continuous 3 months in the 12 months before selling, did not use it to produce income (such as rent) in any part of those 12 months when it wasn’t your home, and the new property becomes your home. Take longer than 6 months to sell and only the last 6 months are covered for both.

The 6 year rule for CGT explained

The 6-year rule lets you keep treating your former home as your main residence after you move out. If you rent it out (or make it available for rent) you can do so for up to 6 years. If you leave it empty or use it as a holiday house, there is no time limit. Either way, you can’t treat another property as your main residence for the same period, apart from the 6-month moving overlap.

The 6 years apply to each period of absence. If you move back in, the clock resets, and the next time you move out you get a fresh 6 years. Periods when the house sits vacant during an absence do not count towards the 6 years, because it is not producing income.

You make the choice when you sell, not when you move out, and you can choose a shorter period. A common reason: if you buy a new home while the old one is rented, you may prefer to claim the exemption on the new home and accept CGT on the old one from that point.

Partial main residence exemption: worked example

A partial exemption applies when the 6 years run out, when you rented the property before living in it, or when part of the home produced income. The taxable share is the gain multiplied by non-exempt days divided by days owned. If you first rented out the home after 20 August 1996 and it was fully exempt until then, the "home first used to produce income" rule resets your cost base to the market value on the day it was first rented, so get a valuation at that time.

Example: you lived in your home, then moved interstate and rented it out for 8 years without buying another home. A valuer put its market value at $720,000 when the first tenant moved in. You sell for $1,080,000 and pay $25,000 in agent and legal costs. Your capital gain is $335,000. You choose the 6-year rule, so 2 of the 8 years are taxable: $335,000 × 2/8 = $83,750. After the 50% CGT discount, $41,875 is added to your taxable income. With other income of $110,000, the extra tax at 2026–27 rates is about $14,581, compared with about $70,575 if you did not use the 6-year rule and all 8 rental years were taxable.

The ATO works on day counts, not years, and the contract dates matter, not settlement. Use the ATO’s CGT property exemption tool for an exact figure.

Renting a room or running a business from home

The ATO applies an "interest deductibility test": if you could claim part of your home loan interest because part of the home produces income, the same part of the gain is taxable. Renting a bedroom to a tenant, or a dedicated surgery or shopfront that is not adaptable for private use, fails the test for that floor area. Working from a home study for your employer, or occasional work from home, does not.

If part of the home produced income before you moved out, the 6-year rule can’t protect that part afterwards. A small business that uses part of its owner’s home may be able to reduce the taxable part with the small business CGT concessions.

Foreign residents and the main residence exemption

Foreign residents generally can’t claim the main residence exemption for property sold after 30 June 2020, even for the years they lived there as Australian residents, and they also lose any partial exemption and the home first used to produce income rule. What counts is your residency at the time of the CGT event, which for a contract sale is the contract date.

The exception is the life events test: you were a foreign resident for 6 years or less, and during that time you, your spouse or your child under 18 had a terminal medical condition, your spouse or child under 18 died, or the sale happened because of a formal agreement after a relationship breakdown. If you plan to move overseas and sell your home, the timing of the sale contract relative to your departure can change the result completely, so get advice before you leave.

Reporting the sale in your tax return

Report a sale in the income year in which you signed the contract. If the home was fully exempt for the whole time you owned it, there is no capital gain to report and any capital loss is ignored. If you used it to earn income, rely on the 6-year rule, or claim a partial exemption, include the CGT event and claim the exemption in your return. In myTax this sits in the capital gains section.

Keep the purchase contract, sale contract, valuation at the date it was first rented, records of capital improvements and your rental schedules. They support both the exemption and the cost base.

What the 2027 CGT reforms mean for your home

From 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation and a 30% minimum tax on capital gains accruing after that date. The ATO says these measures are now law. The Budget 2026–27 tax explainer states that the main residence will continue to be exempt from CGT.

The change still matters for a partial exemption. If part of your gain is taxable and you sell after 1 July 2027, the portion accrued before that date keeps the discount and the later portion is taxed under the new rules. According to the Budget explainer, you will work out the property’s value at 1 July 2027 when you sell, either from a valuation as at that date or with an apportionment formula the ATO will provide tools for.