Do You Pay CGT When You Sell Your House in Australia? The Main Residence Exemption Explained
Most Australians pay zero CGT when they sell their home — but the exemption has conditions. Understand the full exemption, partial exemption, the 6-year rule, and when investment properties trigger a CGT bill.
The short answer: most Australians pay zero CGT when they sell their home. The main residence exemption is one of the most valuable tax concessions in the Australian tax system, and for straightforward cases — you bought a house, lived in it the whole time, and sold it — the exemption is automatic and total. But the rules have enough nuance that anyone who has ever rented their home, run a business from it, or left it vacant for a period needs to understand exactly where they stand.
The main residence exemption — when your home sale is fully tax-free
Under section 118-110 of the Income Tax Assessment Act 1997, a capital gain (or loss) from the disposal of a dwelling is fully disregarded if the property was your main residence throughout the entire period you owned it. Three conditions must all be met:
- The dwelling was your main residence for the entire ownership period
- The property was not used to produce income (no renting out any part, no business use)
- The land area is 2 hectares or less (if more, a partial exemption may apply to the dwelling portion)
If all three apply, you report nothing on your tax return when you sell. No CGT calculation required, no tax payable — regardless of how much the property has appreciated.
Example: You bought a home in Sydney for $600,000 in 2015, lived in it the entire time, and sold it for $1,100,000 in 2025. Capital gain = $500,000. CGT payable = $0.
When you get only a partial exemption
The exemption is partial — not total — when the property was your main residence for some but not all of your ownership period. The most common situations:
- You rented it out for part of the time (even just one year)
- You used a room or portion for a business or home office on a dedicated basis
- You didn't move in immediately after purchase
- You left Australia and the property no longer qualified as your main residence
How the partial exemption is calculated
The ATO pro-rates the exemption based on days. The formula:
Taxable gain = Total gain × (Non-main-residence days ÷ Total ownership days)
The taxable portion is then subject to the standard 50% CGT discount if you held the asset for more than 12 months.
| Scenario | Owned | Lived in | Rented | Exempt portion | Taxable gain (on $400k gain) |
|---|---|---|---|---|---|
| Full main residence | 10 yrs | 10 yrs | 0 | 100% | $0 |
| Rented 2 of 10 years | 10 yrs | 8 yrs | 2 yrs | 80% | $40,000 (after 50% discount) |
| Rented 5 of 10 years | 10 yrs | 5 yrs | 5 yrs | 50% | $100,000 (after 50% discount) |
| Investment property | 10 yrs | 0 | 10 yrs | 0% | $200,000 (after 50% discount) |
The 6-year rule — rent it out and still avoid CGT
This is the most powerful and most misunderstood provision in Australian CGT law. Under the absence rule (s118-145 ITAA 1997), you can continue to treat a property as your main residence for up to 6 years after you move out — even while renting it out — as long as you don't nominate any other property as your main residence during that time.
Practical implications:
- You buy a home, live in it for 2 years, move interstate for work and rent it out for 5 years, then sell. Under the 6-year rule, the entire period can be covered by the main residence exemption — provided you didn't treat any other property as your main residence while away.
- Each time you move back in, the 6-year clock resets. Move back in for even a short period, then move out again, and a new 6-year period begins.
- If you move out indefinitely (with no intention to return) and don't come back within 6 years, only the first 6 years of absence are covered — the remainder is taxable on a pro-rata basis.
- If you leave the property vacant (don't rent it out), the absence can be indefinite — there's no time limit when you're not earning rental income.
Selling an investment property or a partially-exempt home? Use our Capital Gains Tax Calculator to see exactly how much CGT you'll owe based on your income, purchase price, cost base and sale price.
When you definitely do pay CGT on property
The following situations attract CGT on property sales:
Investment property (never your main residence)
If a property was always rented out and never your main residence, no exemption applies. The full capital gain (sale price minus cost base) is taxable. If held more than 12 months, apply the 50% CGT discount. The remaining gain is added to your other income and taxed at your marginal rate — which could be as high as 45% plus the 2% Medicare Levy.
Property bought to develop or renovate and sell (property developer)
If you buy property with the primary intention of resale at a profit, the ATO may treat the gains as ordinary income rather than capital gains — meaning no 50% discount applies and the full amount is taxable at your marginal rate. This can apply to multiple renovations and flips even if you briefly lived in the property.
Home with a dedicated home office or business use
Using a room exclusively for business (e.g. a dedicated consulting room or dental surgery) proportionally reduces your main residence exemption. If your home is 200sqm and your office is 20sqm, you lose 10% of the main residence exemption. Casual home office use — working from the kitchen table, or a shared space — generally does not affect the exemption.
Cost base: what reduces your capital gain
For the portion of any gain that is taxable, you can maximise your cost base to minimise the gain. Items that form part of your cost base include:
- Purchase price
- Stamp duty paid at purchase — for a $700,000 Sydney purchase, this adds approximately $26,335 to cost base
- Legal and conveyancing fees at purchase (typically $1,500–$3,000)
- Capital improvements — a new kitchen, bathroom extension, additional room. Keep all receipts.
- Selling costs — agent commission (typically 2–3%), advertising, legal fees at sale
Items that do NOT form part of the cost base: regular maintenance and repairs, interest on mortgage (these are claimed as deductions against rental income instead), and depreciation claimed on tax returns.
Inheriting property — different rules apply
When you inherit a property, the inheritance itself is not a CGT event. What matters is what happens when you sell it:
- Pre-CGT property (deceased acquired before 20 September 1985): your cost base is the market value at the date of death. If you sell within 2 years of the deceased's death and it was their main residence, full exemption applies.
- Post-CGT property (acquired after 20 September 1985): you inherit the deceased's cost base and their ownership start date. The main residence exemption may still apply if it was the deceased's main residence up to death.
Frequently asked questions
Do I pay capital gains tax when I sell my home in Australia?
In most cases, no. If the property was your main residence for the entire period you owned it, was not used to produce income (renting or business use), and the land is 2 hectares or less, the sale is fully exempt from CGT. This is the main residence exemption — one of the most valuable tax concessions available to Australian individuals.
What is the CGT main residence exemption?
The main residence exemption is a provision in Australian tax law (s118-110 ITAA 1997) that exempts a capital gain on your home from income tax. To qualify for the full exemption: the property must have been your main residence for the entire ownership period, you must not have used it to produce income (e.g. rented it out), and the land must not exceed 2 hectares. If any of these conditions aren't fully met, only a partial exemption applies.
What is the CGT 6-year rule in Australia?
The 6-year rule allows you to continue treating a property as your main residence for up to 6 years after you move out, provided you don't treat another property as your main residence during that time. This means you can rent out your former home for up to 6 years and still qualify for the full CGT exemption when you eventually sell. Each time you move back in and then move out again, the 6-year period resets.
If I rented out my home for a few years, do I still get a CGT exemption?
A partial exemption applies. The exemption is calculated pro-rata based on the proportion of time the property was your main residence versus investment/rental use. For example, if you owned the property for 10 years and lived in it for 8 years (renting for 2 years), 80% of any capital gain is exempt and the remaining 20% is taxable. You can also apply the 6-year rule to extend the exempt period if you didn't acquire another main residence.
Do I pay CGT when I sell an investment property in Australia?
Yes — investment properties (those that were never your main residence) are fully subject to CGT. The gain is calculated as sale price minus cost base (purchase price, stamp duty, legal fees, capital improvements, and selling costs). If held for more than 12 months, the gain is reduced by 50% before being added to your income and taxed at your marginal rate. Use our CGT calculator to estimate the tax payable.
Is CGT calculated on the full sale price of my home?
No — CGT is calculated on the capital gain, not the sale price. The capital gain is the difference between the sale price and your cost base. The cost base includes: (1) the original purchase price; (2) stamp duty and legal fees at purchase; (3) capital improvements (renovations, extensions); and (4) selling costs such as agent commission and legal fees at sale. Day-to-day maintenance is not included in the cost base.
What happens to CGT when I inherit a property in Australia?
Inheriting a property is not a CGT event in itself. If the deceased acquired the property before 20 September 1985 (pre-CGT), you inherit it with a cost base of its market value at the date of death, and a sale within 2 years is fully exempt. For properties acquired post-20 September 1985, you inherit the deceased's cost base and ownership period. If the property was the deceased's main residence and you sell within 2 years of their death, the full exemption generally applies.
Can I have two main residences at once in Australia?
Generally no — you can only have one main residence at a time. However, there is a 6-month overlap rule: if you are moving from one home to another and both are eligible for the main residence exemption, you can treat both as your main residence for up to 6 months during the transition period (while actively trying to sell the first home).
This article reflects Australian CGT rules under the Income Tax Assessment Act 1997 as at July 2025, sourced from ATO guidance. CGT is a complex area — partial exemption calculations, the 6-year rule, inherited property rules and property developer rules all depend heavily on specific facts. This is general information only. Consult a registered tax agent or tax lawyer for advice on your particular situation before selling a property.