What is the main residence exemption for capital gains tax in Australia?

Answer

Yes, Australia's main residence exemption allows you to disregard capital gains tax (CGT) on the sale of your primary home, provided it meets specific eligibility criteria and has been continuously used as your home.

Australian Taxation Office (ATO)

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Last Updated:May 5, 2026

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How it works in practice

Understanding the Main Residence Exemption

The main residence exemption is a significant provision in Australian tax law that allows individuals to avoid paying Capital Gains Tax (CGT) when they sell their primary home. For a property to qualify, it must generally have been occupied as your home for the entire period of ownership, and you must have lived there. It is designed to relieve taxpayers from CGT on their family home, recognising it as a fundamental asset rather than an investment.

How it Works

When you sell a property that has been your main residence throughout your ownership period, any capital gain or loss you make is disregarded. This means you do not include it in your assessable income for tax purposes. If the property was not your main residence for the entire ownership period, you might be entitled to a partial exemption, calculated based on the proportion of time it was your main residence.

Important exceptions

While generally straightforward, there are important exceptions to the full main residence exemption.

Temporary Absence (6-Year Rule)

If you move out of your main residence, you can continue to treat it as your main residence for CGT purposes for up to six years, provided you do not treat any other property as your main residence during that period. If you do not use the property to produce income (e.g., rent it out), you can nominate it as your main residence indefinitely. If you rent it out, the six-year limit applies.

Income-Producing Use

If you use any part of your home to produce income, such as renting out a room, running a business from a dedicated space, or renting the entire property after moving out, the exemption may be reduced. This could result in a partial capital gain being subject to CGT.

Land Size Limit

The exemption generally applies to the dwelling and up to two hectares of land adjacent to it. If your property is larger than two hectares, only the portion up to two hectares may qualify for the exemption, provided it is used for private and domestic purposes in connection with the dwelling.

What you should do now

Confirm Eligibility: Verify if your property qualifies as a main residence for the entire ownership period, or for a portion, based on ATO guidelines.
Keep Records: Maintain detailed records of when you bought and sold the property, periods you lived there, and any periods it was used to generate income.
Understand the 6-Year Rule: If you temporarily move out, ensure you understand the conditions of the 6-year rule, especially if you rent out the property.
Seek Professional Advice: For complex situations, such as partial income-producing use or large landholdings, consult a tax professional.
Calculate CGT: If only a partial exemption applies, accurately calculate the capital gain attributable to the non-main residence period using ATO guidance.

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