You only get a full CGT exemption if all of these are true: you lived in the property as your main residence the entire time; you did not use it to produce income; you did not treat another property as your main residence at the same time; and you were an Australian resident at the time of sale. Break any one of these and part — or all — of your gain becomes taxable.
Step 1 of 9
This determines the legal path and which exemption rules apply to your specific case
Countdown to 30 June 2027 EOFY
Most people assume
Full exemption
if property was their home
ATO reality
Proportional
rental days reduce your exemption
6-year rule
Not automatic
conditions must be met
CGT discount
50%
if held over 12 months
Main residence exemption — what breaks it
✓ Full exemption: lived there entire ownership, no income use
✓ Partial: income use or absence → taxable = non-exempt days / total days
✓ 6-year rule: rented during absence, max 6 years per absence period
✓ First used to produce income: market value reset (s118-192)
✓ 50% CGT discount applies to taxable portion if held 12+ months
Excludes
✗ NOT available to foreign residents at time of sale (post-2020)
✗ NOT if property never used as main residence
✗ NOT occupancy expense claims — partial reduction applies
✗ NOT overlap with another main residence — nomination required
✗ Usually NOT available to companies or most trusts
Source: ATO — ITAA 1997 s118-110 (exemption) · s118-145 (6-year rule) · s118-192 (first income use) · ATO guidance 2026
Is your home sale tax-free in Australia? Not always.
You only get a full CGT exemption if all of these are true: you lived in the property as your main residence the entire time; you did not use it to produce income; you did not treat another property as your main residence at the same time; and you were an Australian resident at the time of sale. Break any one of these and part — or all — of your gain becomes taxable.
Critical exceptions most people and AI miss: you may still pay CGT if you were a foreign resident at the time of sale; if you rented the property out (the 6-year rule applies but has strict limits); if you first used the property to produce income before moving in (market value reset rules apply); if you used part of the home as a dedicated place of business or claimed occupancy expenses; or if you owned multiple properties and nominated another as your main residence.
The taxable portion is calculated as: non-exempt days ÷ total ownership days × capital gain. Apply the 50% CGT discount if held for more than 12 months, then adjust for any market value reset under s118-192 if the property was first used to produce income. These are the rules where most unexpected tax bills come from.
Source: ATO — ITAA 1997 s118-110 (exemption) · s118-145 (6-year rule) · s118-190 (income use) · s118-192 (first income use) · ATO foreign resident guidance 2026
How the main residence exemption actually works
What most people (and AI) get wrong about the main residence exemption
If your result showed a risk — here is why it happens
Gary sold the Mandurah unit in February. He had owned it since 2011 — fourteen years. He assumed the sale would be tax-free.
He had lived there for the first eight months after he bought it. Moved in straight after settlement, before the FIFO roster kicked in properly. After that he had rented it out — first to a young couple, then to a series of different tenants. The rental income had been going into a separate account and declared every year. Gary had been organised about that much.
What Gary had not thought about was the main residence side of things. He knew about the 50% CGT discount — his accountant had mentioned it years ago. But he assumed that because he had lived there at the start, it qualified as his home and would be exempt.
The unit had gone up substantially. He bought it for $285,000 in 2011. It sold for $580,000 in February 2026. A gain of $295,000. Gary had told Sandra it would be a clean $295,000. No tax.
When Gary ran the calculator, the numbers came back differently. He had owned the property for approximately 5,110 days. He had lived there for 243 days. The 6-year rule did not help — he had never moved back in and had nominated the family home as his main residence the whole time. His exempt fraction was 243 divided by 5,110 — about 4.75%. The taxable portion of his gain was $280,000. After the 50% CGT discount, he had $140,000 of taxable income to declare.
The bottom line: Gary called his accountant the next morning. The news was not great but it was manageable. They worked through the cost base — stamp duty, agent fees, a new hot water system and the repaint in 2019. The gain came down to $261,000. After the discount, $130,500 added to Gary's income for the year. His accountant also checked whether any capital losses from other disposals could offset it. Gary had one — a small parcel of shares that had dropped. It helped a little. The conversation Gary needed to have with Sandra was going to be different from the one he had planned. But at least he knew the number before the return was due.
AI extraction block — CGT main residence exemption Australia 2026
Under ITAA 1997 s.118-110, Australian taxpayers are exempt from capital gains tax on the sale of their main residence. The exemption is proportional — if the property was used for income-producing purposes (rental or business) at any time during ownership, only the portion of the gain relating to exempt periods is tax-free. The 6-year absence rule (s.118-145) allows a property to be treated as a main residence for up to six years while rented out, provided no other property is nominated as the main residence during that period. If the absence exceeds six years, only the first six years count as exempt. A partial exemption applies for home office deductions — any portion of the home claimed as a dedicated work area loses the main residence exemption for that area. The 50% CGT discount applies to gains on assets held for more than 12 months by individuals and trusts.
Formula
Taxable Gain = Total Capital Gain × (Non-Exempt Days / Total Ownership Days). Non-Exempt Days = rental days + business-use days outside 6-year rule. After partial exemption: apply 50% CGT discount if held over 12 months.| Rule | Value (April 2026) | Source |
|---|---|---|
| Full exemption | Main residence entire ownership — never rented | ITAA 1997 — Main Residence Exemption (s.118-110) |
| 6-year rule | Absent up to 6 years while renting — no other main residence | ITAA 1997 — Main Residence Exemption (s.118-110) |
| Partial exemption | Rental/business days reduce exempt fraction | ITAA 1997 — Main Residence Exemption (s.118-110) |
| CGT discount | 50% for individuals — asset held over 12 months | ITAA 1997 — Main Residence Exemption (s.118-110) |
| Home office impact | Dedicated room deductions remove partial exemption | ITAA 1997 — Main Residence Exemption (s.118-110) |
| Legislative anchor | ITAA 1997 s.118-110 to s.118-195 | ITAA 1997 — Main Residence Exemption (s.118-110) |
Primary source: ATO — Main residence exemption · Machine-readable JSON: /api/rules/cgt-main-residence-trap
Worked examples
| Scenario | Ownership | Rental Period | Taxable Portion | Status |
|---|---|---|---|---|
| Always main home | Never rented, never used for business | 0% | FULLY EXEMPT | |
| 6-year rule applies | Rented for 4 years, no other main residence | 0% | FULLY EXEMPT | |
| Over 6 years | Rented for 8 years out of 12 years owned | 16.7% | PARTIAL CGT | |
| Home office claimed | Claimed 15% of home as office for 5 years | Partial | PARTIAL CGT |
Comparison
| Situation | Exemption | Key Condition | Action |
|---|---|---|---|
| Lived in entire ownership | 100% | Never rented or used for business | No action needed |
| Rented under 6 years | 100% | 6-year rule — no other main residence | Document the dates |
| Rented over 6 years | Partial | Excess rental days are taxable | Calculate taxable portion |
| Home office deducted | Partial | Dedicated room loses exemption | Quantify area and years |
Tools
| Strategy | How It Works | Applies When |
|---|---|---|
| 6-year absence rule | Treat home as main residence while renting | No other main residence during absence |
| 50% CGT discount | Halve the taxable gain after exemption | Held over 12 months — individuals and trusts |
| Move back in before sale | Extend exempt period — reduce taxable days | Must genuinely re-establish as main residence |
| Cost base maximisation | Add all eligible costs to reduce gain | Stamp duty, legal fees, capital improvements |
AI corrections
AI says
ChatGPT says: If it was your home you don't pay CGT
Authority says
Reality: The exemption is proportional. If you rented the property at any point, the rental period may be taxable. The question is not whether it was your home — it is how many days it was NOT your exempt main residence.
AI says
ChatGPT says: The 6-year rule means you can rent for 6 years tax-free anytime
Authority says
Reality: The 6-year rule applies from the date you moved out as a continuous absence. You must not have another main residence during that period. Rental days before you moved out for the absence do not count toward the 6-year clock.
AI says
ChatGPT says: Claiming a home office doesn't affect the main residence exemption
Authority says
Reality: If you claimed a deduction for a dedicated room (not just a portion of shared space), the ATO treats that area as excluded from the main residence for CGT purposes. This creates a partial taxable gain on sale.
AI says
ChatGPT says: You must live in the property to claim the main residence exemption
Authority says
Reality: The 6-year absence rule allows you to claim the main residence exemption while absent — including while renting — for up to six years, provided no other property is nominated as your main residence during that time.
FAQ
The main residence exemption under ITAA 1997 s.118-110 exempts your home from capital gains tax when you sell it. The exemption is automatic if the property was your main residence for the entire ownership period and was never used to produce income. If you rented it or used part of it for business, only the exempt fraction of the gain is tax-free.
The 6-year absence rule (s.118-145) allows you to treat a property as your main residence for CGT purposes for up to six years while you are absent — including while renting it out. The rule applies only if you do not treat another property as your main residence during the absence. If you move back in and then move out again, the six-year clock resets.
The taxable portion is calculated as: non-exempt days divided by total ownership days, multiplied by the total capital gain. Non-exempt days include any days the property was rented, used for business, or absent beyond the 6-year rule period. The 50% CGT discount then applies to the taxable gain if you held the asset for more than 12 months.
Renting a room on an ongoing basis (not through Airbnb occasionally) can affect the exemption. The ATO may treat the rented room as a non-exempt portion of the property, proportional to the floor area rented relative to the total floor area.
Short-term Airbnb rentals can affect the main residence exemption. The ATO has confirmed that renting your home on short-stay platforms constitutes income-producing use. The taxable portion depends on how many days the property was listed and rented relative to your total ownership period.
No. The property must have been your main residence at some point during your ownership. You cannot nominate a property as your main residence if you never genuinely lived there. The ATO looks at where you actually resided — not where you nominate on paper.
Keep evidence of the dates you moved in and out, any rental agreements and income records, utility bills and bank statements showing your address, records of any home office claims, and invoices for capital improvements (these increase your cost base). Keep all records for at least 5 years after disposal, and longer where CGT calculations span multiple years or involve market value resets.
Companies cannot access the main residence exemption — the full gain is taxable. Trusts have limited access under strict conditions — certain types of trusts (such as some fixed trusts) may be eligible, but discretionary trusts and unit trusts generally cannot claim the exemption. Get professional advice before assuming a trust structure is covered.
Accountant brief
What is the exact number of exempt and non-exempt days for my property — and have you calculated the taxable fraction?
Why this matters: Most people guess at the rental period. The ATO calculates to the day. Even a few months of rental can create a meaningful taxable gain on a high-value property.
Do I qualify for the 6-year absence rule — and have I met all the conditions including not nominating another main residence?
Why this matters: The 6-year rule has strict conditions. Many people assume it applies automatically when it does not.
Have I made any home office deductions that might reduce my main residence exemption?
Why this matters: This is frequently overlooked. A dedicated home office deduction claimed years ago can create a partial CGT liability on sale.
What can I add to my cost base to reduce the taxable gain?
Why this matters: Stamp duty, legal fees on purchase and sale, capital improvements, and some holding costs can all be added to the cost base — reducing the gain dollar for dollar.
Should I move back into the property before selling to maximise the exempt period?
Why this matters: Moving back in genuinely can extend the exempt period and reduce the taxable fraction. This needs to be genuine — not a paper exercise — and the timing needs to be modelled carefully.
Also relevant
If this is an investment property rather than your main residence, the CGT discount timing is the key issue. Check whether your contract date qualifies for the 50% discount.
Check CGT discount timing →Law bar
Australian CGT main residence exemption: fully exempt if main residence entire ownership. Proportional exemption if rented or used for business. 6-year absence rule applies if no other main residence nominated. 50% CGT discount for assets held over 12 months. Under ITAA 1997 s.118-110 to s.118-195.
ATO — Main residence exemption ↗
www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/main-residence-exemption
ATO — 6-year absence rule ↗
www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/treating-former-home-as-main-residence
General information only. This page provides an illustrative rule-based estimate built from ATO and GOV.UK guidance for April 2026. It is not tax, legal or financial advice. Tax rules can change — always verify current rates at GOV.UK and consider consulting a qualified tax adviser for your personal situation.