Your home is generally exempt from capital gains tax (CGT) if it is your main residence and you are an Australian resident. The exemption is narrower than people often assume. It can be reduced if you rent the property, rent out a room, run a business from a dedicated area, or if you are a foreign resident when you sell. It can also be extended after you move out, for up to six years if you use the home to produce income, or indefinitely if you do not.

This explainer works through those absence and partial-exemption rules, using official ATO examples last updated 22 June 2026. It sits with the Never Lose Interest CGT calculator and CGT old versus new rules guides. From 1 July 2027, any taxable part of a gain that accrues from that date is worked out under the new CGT settings, even if the home was once fully exempt.

This is general information only. It is not personal advice or a tax assessment. Whether a dwelling was your main residence, and for which days, depends on the facts.

When is a home fully exempt?

In outline, an Australian resident individual can usually disregard a capital gain or loss on a dwelling that was their main residence for the whole ownership period, on land of two hectares or less, if they did not use it to produce assessable income. Ownership days are counted from the purchase contract to the sale contract, not from settlement, which is the same contract-date rule used in the CGT calculator explainer.

You generally have to move in as soon as practicable after settlement. Building, repairing or renovating a dwelling on land you already own has its own ATO rules, including a time limit and a requirement that you then live in it for at least three months. Check those rules if you are buying land and building, rather than assuming the exemption starts at the land settlement date.

You cannot treat two dwellings as your main residence at the same time, except for a limited overlap of up to six months when you are moving from one home to another.

If you are a foreign resident when the CGT event happens, you generally cannot claim the main residence exemption. There are limited exceptions. See the ATO's foreign resident main residence material if that applies.

A full exemption does not mean you can ignore the sale in your records. If you used the 6-year rule, or you rented the property at any time, the ATO still expects the CGT event to be dealt with in the return for the year of the sale contract, including a claim of the exemption where it applies.

What is the 6-year absence rule?

Usually, a property stops being your main residence when you stop living in it. For CGT purposes you can continue treating it as your main residence:

  • for up to six years if you used it to produce income, such as rent, or made it available for rent (the "6-year rule")
  • indefinitely if you did not use it to produce income, for example if you left it vacant or used it as a holiday house, and you are not treating another property as your main residence

During the period you treat the former home as your main residence, it stays exempt, and you cannot treat another property as your main residence, other than the six-month overlap when you are moving house.

You can choose when the period covered by your choice stops. If you rented the home for five years, you could choose to cover only three of those years, if you wanted the new home to be the main residence from an earlier date. The choice is made when you lodge the return for the year you sell, not when you first move out. You still need the records then.

If you are absent more than once, the six-year limit applies to each period of absence. A period of absence stops when you stop renting and either move back in, or leave the property vacant. In the ATO's Jez example, a five-year rental, a return to live in the house for two years, and a later four-year rental were two separate absences. Each was within six years, so Jez could treat the house as his main residence for both rental periods.

Vacant periods do not use up the six-year income-producing limit. In the ATO's Lisa example, after moving out she rented for three years, left the house vacant for two, rented for three, and left it vacant for two. The income-producing time totalled six years, and the vacant periods were unlimited, so she could cover the whole ten-year absence.

If, in one absence, you use the former home to produce income for more than six years, CGT applies to the period after the six-year limit. The "home first used to produce income" rule, explained below, is then used to set the cost base.

You cannot use the continuing exemption for a part of the home that you already used to produce income before you moved out. In the ATO's Helen example, 25% of the house had been a doctor's surgery while she lived there. She later rented the whole house and chose the 6-year rule, but 25% of the capital gain remained assessable.

How is a partial exemption calculated?

If the dwelling was your main residence for only part of the ownership period, and you are an individual who did not acquire it as a beneficiary or trustee of a deceased estate, the taxable part is generally:

capital gain or loss (apart from the exemption) times (non-main-residence days divided by days in the ownership period)

The law includes a worked example: a house bought in July 2020, lived in immediately, rented from July 2023 and sold in July 2030 with a $10,000 gain. The owner chooses the 6-year rule for the first six of the seven rental years. One year is taxable, and $10,000 times (365 divided by 3,650) is $1,000.

If you first rented a property and only later moved in, the exemption usually covers only the period you lived there. The "first used to produce income" market-value reset does not apply if the property produced income from the time you acquired it. You work out the whole gain from the actual cost base, then tax the rental days over the total ownership days.

The ATO's Farnaz example uses contract dates. She bought on 21 October 2019 for $449,000, rented immediately, moved in on 16 November 2021, and sold by contract on 1 April 2026 for $987,500. The gain was $538,500. Rental days were 757, ownership days were 2,355, and the assessable gain was $538,500 times (757 divided by 2,355), or $173,097. After the 50% discount, the net capital gain was $86,548.

Peter's similar official example, of a house bought for $550,000, rented, then lived in and sold for $780,000, produces an assessable gain of $230,000 times (1,004 rental days divided by 4,564 ownership days), or $50,595, and a net gain of $25,297 after the discount.

What if I rent out a room, or run a business from home?

If you use part of the home to produce assessable income while you live in it, that part can be taxable when you sell. The ATO uses an interest deductibility test: if you would be allowed a deduction for part of the interest on a loan to buy the home, CGT can apply to the same extent. You cannot avoid that result by choosing not to claim the interest.

Merely working from home occasionally, or using a study for work you would usually do at the office, does not ordinarily turn part of the home into a place of business, and it does not, by itself, take away the full main residence exemption. A doctor's surgery, or another area set aside exclusively as a place of business and not readily adaptable for private use, is a different case. See also the working from home and car expenses guide, which deals with the income tax deduction, not the CGT test.

If you first started using the home to produce income after 20 August 1996, you generally need a market valuation at that time, and you are treated as if you acquired the home at that market value on that date. That is the "home first used to produce income" rule. It does not apply if the property is fully exempt because you chose the 6-year absence rule, if you used it to produce income from the day you acquired it, or in some inherited-dwelling cases.

The ATO's Thomas example is a room-rental throughout ownership. He bought for $300,000 on 1 July 2003 and sold for $700,000 on 30 June 2026. A tenant had one bedroom (20% of the house) and shared living areas (30%). Thomas's deductible and taxable portion was 20% plus half of 30%, or 35%. The $400,000 gain times 35% was $140,000, and after the 50% discount the net capital gain was $70,000.

Fatima used 40% of her home for a consultancy from 1 November 2018, when the house was worth $520,000, until 1 August 2022, and sold on 1 May 2026 for $620,000. The gain from the 2018 value was $100,000. After the 40% floor area and the 1,370 business days out of 2,739 days from first business use to sale, the gain was $20,007, or $10,003 after the discount.

If you sell within 12 months of the deemed acquisition date, the 50% discount is not available. In the ATO's Erin example, she moved out on 1 August 2025, did not choose the 6-year rule, and sold on 10 June 2026. She was taken to have acquired the house for its 2 August 2025 market value of $650,000, and she could not discount the $46,000 gain.

What records should I keep?

Keep:

  • purchase and sale contracts, and the dates
  • a record of when you moved in, moved out, and, if relevant, moved back
  • tenancy agreements, advertising and period the property was available for rent
  • a market valuation if you first used the home to produce income after 20 August 1996
  • floor-area measurements if only part of the home was used to produce income
  • selling costs that form part of the cost base

From 1 July 2027, you will also need a defensible market value for any taxable CGT asset you already hold, or a method the law allows, as explained in CGT old versus new rules. A home that remains fully exempt does not need that calculation, but a partial exemption does.

Frequently asked questions

If I rent my home for five years, is the whole gain exempt?

It can be, if the home was your main residence first, you choose the 6-year rule for that absence, you do not treat another property as your main residence for the same time (other than a six-month move), and you did not already use part of the home to produce income before you left.

Does moving back in reset the six years?

Yes, in the sense that a new period of absence, after you have lived in the property again, has its own six-year limit. The ATO's Jez example works that way.

I bought as an investment and later moved in. Can I exempt the earlier rental period?

No. The exemption is limited to the period the property was your main residence. The rental period remains taxable, using the days formula and your actual cost base, as in the Farnaz and Peter examples.

Does working from home on a laptop create a CGT bill?

Not in the usual employee situation. The ATO distinguishes occasional work at home, or a study used for work usually done at the office, from a part of the home set aside exclusively as a place of business.

When do I report the sale?

In the income year of the sale contract, not the settlement year, if those dates differ.

General information warning

This article is general information only. It is not personal advice, tax advice or a calculation of your notice of assessment. It does not take into account your objectives, financial situation or needs. Absence choices, valuations and floor-area apportionment can change the result materially. The 2027 CGT changes will apply to any taxable part of a later gain. Consider speaking with a registered tax agent before you sell, rent out a home, or treat a new property as your main residence.

Sources

Last reviewed: November 2026.