Capital gains tax and your main residence (CGT)

The basic rule

Section 118-110 says a capital gain or loss from a CGT event on a dwelling is disregarded if:

1. you are an individual;
2. the dwelling was your main residence throughout your ownership period; and
3. you did not receive it as a beneficiary or trustee of a deceased person’s estate (a separate rule, section 118-195, applies to those).

The ownership period is the period on or after 20 September 1985 when you held an ownership interest in the dwelling. The main events that count include a sale (CGT event A1).

A “dwelling” includes a unit of accommodation in a building (such as a flat), a caravan or houseboat, and the land immediately under it.

Land around the house: 2 hectares

The exemption covers land adjacent to the dwelling that you used mainly for private or domestic purposes with it. The maximum area is 2 hectares, less the area of land immediately under the dwelling. Garages and storerooms associated with a flat or home unit can also qualify when used primarily for private or domestic purposes.

Moving in and changing homes

• Moving in: if the dwelling becomes your main residence by the time it was first practicable to move in after you acquired it, it is treated as your main residence from when you acquired it.
• Changing main residence: when you buy a new home and still own the old one, both can be treated as your main residence for the shorter of 6 months before the old one is sold or the period between the two acquisitions. This applies only if the old home was your main residence for a continuous period of at least 3 months in the 12 months before you sold it, and was not used to produce income in the rest of that 12 months.

Renting it out: the absence rule

When a dwelling that was your main residence stops being so, you may choose to keep treating it as your main residence (section 118-145):

• if you use it to produce income, for example rent, the maximum is 6 years for each absence. You get another 6 years each time it again becomes and then stops being your main residence;
• if you do not use it to produce income, you can treat it as your main residence indefinitely;
• while you apply this choice you cannot treat another dwelling as your main residence, except for the 6-month overlap above.

You can make the choice when preparing your tax return for the income year you sell. The Act’s own example: you live in a house for 3 years, are posted overseas for 5 years and rent it out, return for 2 years, go overseas again for 4 years and rent it out, then return for 3 years and sell. You may choose to treat the house as your main residence during both absences because each is less than 6 years.

Partial exemption

If the dwelling was your main residence for only part of your ownership period, section 118-185 gives a partial exemption. The gain is reduced by reference to the number of days in the ownership period when it was not your main residence. In formula terms: capital gain × non-main-residence days ÷ days in the ownership period.

The Act’s example: you buy in July 2020 and move in, move out in July 2023 to rent it, and sell in July 2030 with a gain of $10,000. You choose to treat it as your main residence for the first 6 of the 7 rented years. By calculation using whole years, that leaves 1 year of 10 as non-main-residence, so about 1/10 × $10,000 = $1,000 of the gain is taxable (before any other rule). Section 118-190 adds a further reduction where the home was used to produce income and you could have deducted interest on borrowings for it.

Foreign residents

The exemption is not available if, at the time of the CGT event, you are:

• an excluded foreign resident, meaning you have been a foreign resident for a continuous period of more than 6 years; or
• a foreign resident who does not satisfy the life events test.

You satisfy the life events test if you have been a foreign resident for a continuous period of 6 years or less and: you or your spouse had a terminal medical condition during that period; your child under 18 had one; your spouse, or child under 18, died during that period; or the CGT event happens because of a relationship-breakdown matter covered by section 126-5(1) involving you and your spouse or former spouse. When a non-resident sells, the buyer may also have to withhold part of the price: see foreign resident capital gains withholding.

2026 changes to how gains are calculated

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received assent on 26 June 2026. Its CGT amendments to how gains are worked out apply to CGT events on or after 1 July 2027 or to income years that include 1 July 2027. The Act refers to the main residence exemption (Subdivision 118-B) only to exclude main-residence days from a new “residential accommodation” rule. It does not change the tests above in the sections we read. For a sale after 1 July 2027, check the ATO’s current guidance.

Which professional to consult

A registered tax professional works out whether the exemption applies and how to make the absence choice. A conveyancer deals with the sale contract and settlement (conveyancers).