For most Australians, the family home is their biggest asset and it's tax-free when they sell it. That's the main residence exemption. But the exemption has more conditions than people realise, and once a home has been rented out, used for a business, owned through a trust, inherited or sold while you live overseas, the answer gets more complicated and more expensive.
This guide covers how the exemption works, the six-year rule, what happens when a home is first rented out, foreign residents, deceased estates, homes held in trusts, and how the capital gains tax changes from 1 July 2027 interact with it. Those changes are law, under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. The ATO has confirmed there are no changes to the main residence exemption itself.
What is the main residence exemption?
It's the rule in Subdivision 118-B of the tax law that disregards a capital gain (or loss) on a dwelling that's your main residence. You get the full exemption if all of these are true:
| Condition | What it means in practice |
|---|---|
| You're an individual | Companies and most trusts can't claim it (see below for the exceptions) |
| It was your main residence for the whole time you owned it | Counted from settlement of purchase to settlement of sale, with some timing concessions |
| It wasn't used to produce income | No renting, no Airbnb, no business use with interest deductibility |
| The land is 2 hectares or less | Land used mainly for private purposes with the home. Above 2 hectares, the extra is taxable |
| You're not a foreign resident when the CGT event happens | Usually the contract date. See the foreign residents section |
If one of these isn't met, you may get a partial exemption, which usually means a share of the gain is taxable based on days.
What counts as your main residence?
There's no single test. The ATO looks at the facts: whether you and your family actually live there, whether your belongings are there, whether it's your address for mail, the electoral roll, utilities and your driver licence, and how long you've lived there. Living somewhere for a few weeks to claim the exemption doesn't work. Living there genuinely, even for a shorter time, can.
Timing concessions that extend the exemption
- Moving in as soon as practicable. If you move in as soon as practicable after settlement, the home is treated as your main residence from when you acquired it.
- Changing homes. When you buy a new home before selling the old one, both can be exempt for up to six months, if the old home was your main residence for at least three continuous months in the 12 months before you sold it and wasn't income-producing in that time.
- Building, renovating or repairing. If you build a home on land you own, you can treat the land as your main residence for up to four years before you move in, provided you then live there for at least three months.
How does the six-year rule work?
The six-year rule (the absence rule) lets you keep treating a former home as your main residence after you move out.
- If you don't rent it out, you can treat it as your main residence for an unlimited period.
- If you rent it out (or use it to produce income), you can treat it as your main residence for up to six years during each period of absence.
- If you move back in, the six-year clock resets for the next absence.
- While you use the rule, you can't treat any other dwelling as your main residence, except for the six-month changeover.
Example: you move interstate for work for five years and rent out your home. You choose the absence rule and sell after you return, or while you're away. As long as the absence with rent is six years or less, and you didn't claim another home as your main residence in that time, the whole gain can be exempt.
| Your situation | Six-year rule outcome |
|---|---|
| Moved out, left it empty or used by family for free | Can be exempt indefinitely, if you don't claim another home |
| Moved out and rented it for 4 years, then sold | Can be fully exempt |
| Rented for 8 years, then sold | Partial exemption: about 2 years taxable (see the market value rule below) |
| Rented for 5 years, moved back for a year, rented again for 5 years | Can be fully exempt; moving back resets the clock |
| Moved out and bought a new home you live in | You must choose which one is your main residence for the overlap. Only one can be exempt (apart from six months) |
The ATO's guidance on treating a former home as your main residence has more examples.
What happens when your home is first used to produce income?
If you start renting out your home (or use part of it for a business), and you aren't covering that period with the six-year rule, a special rule may apply. You're treated as having acquired the home at its market value at the time it was first used to produce income, if:
- you acquired it on or after 20 September 1985,
- you first used it to produce income after 20 August 1996, and
- you would have got the full exemption if you'd sold it just before then.
This is called the home first used to produce income rule. It isn't optional when it applies. In practice it means the gain you pay tax on is measured from the market value at that date, not your original purchase price. Get a valuation when you first rent out your home. Without one, you'll be estimating a past value years later, which is harder to defend.
Partial exemptions and running a business from home
If part of your home is used to produce income, for example a room rented to a lodger or a dedicated home office used for a business where you could claim interest, you get a partial exemption based on the floor area used and the days it was used that way. Simply working from home as an employee, or a home office where you couldn't claim interest, usually doesn't affect the exemption.
Worked example: selling a former home that's been rented
Hypothetical, rounded. Assumes the six-year rule is chosen.
Say Priya bought her apartment in 2012 for $600,000 and lived in it until 30 June 2019, when she moved interstate. It was worth $900,000 then, according to a valuation she got at the time. She rented it out from 1 July 2019. She signs a contract to sell it in late June 2027 for $1,300,000. She's still an Australian resident.
| Step | Amount |
|---|---|
| Deemed cost base (market value when first rented) | $900,000 |
| Sale price | $1,300,000 |
| Gain from 1 July 2019 | $400,000 |
| Rented for about 8 years; six-year rule covers 6 | 2 ÷ 8 taxable |
| Taxable share of the gain | $100,000 |
| Less 50% CGT discount (contract before 1 July 2027) | –$50,000 |
| Net capital gain | $50,000 |
Three ways the result could change:
- If she'd sold two years earlier, within six years of moving out, the gain could have been fully exempt.
- If she'd moved back in for a period before renting it again, the six-year clock would have reset.
- If she signs in July 2027 instead, the taxable share would be worked out under the new rules for growth after 30 June 2027: indexation instead of the discount for that part, and the 30% minimum tax if her rate is below 30%. She'd need the apartment's value just before 1 July 2027, or the Government's apportionment method, to split it.
How do the 1 July 2027 CGT changes affect your home?
The ATO says there are no changes to the main residence exemption. If your home is fully exempt, it stays fully exempt, before and after 1 July 2027. A home that's always been your main residence doesn't need a 30 June 2027 valuation for tax.
The changes do matter where any part of the gain on a home is taxable:
| Situation | What changes from 1 July 2027 |
|---|---|
| Former home rented for more than six years, sold after 1 July 2027 | Growth to 30 June 2027 keeps the 50% discount; the taxable share of later growth gets indexation instead and may attract the 30% minimum tax |
| Part of the home used for a business or rented to a lodger | The taxable part is split the same way |
| Land over 2 hectares | The taxable part over 2 hectares is split the same way |
| Home bought before 20 September 1985 and later rented | Growth to 30 June 2027 stays exempt as pre-CGT; later growth comes into CGT if the exemption doesn't cover it |
| Former home now a rental, bought after 7.30 pm AEST on 12 May 2026 | From 1 July 2027, net rental losses on an established home bought after that time can't be offset against salary. See our guide to negative gearing changes |
If you own a former home that's now rented and you're likely to sell after 30 June 2027, a valuation as at that date will help, especially if it's well past its six years. Our guide to the CGT discount changes from 1 July 2027 explains the snapshot rule and the valuation options.
Can foreign residents claim the main residence exemption?
Generally, no. If you're a foreign resident for tax purposes when the CGT event happens (usually the date you sign the sale contract), you can't claim the main residence exemption, full or partial, even for the years you lived in the home as an Australian resident. This has applied to all sales since 30 June 2020.
The only exception is the life events test. You must have been a foreign resident for a continuous period of six years or less, and during that time one of these must have happened:
- you, your spouse or your child under 18 had a terminal medical condition
- your spouse or your child under 18 died
- the sale was because of a divorce, separation or similar relationship breakdown.
If you're planning to move overseas, the timing of a home sale matters a lot. Selling before you become a foreign resident, or after you return and become a resident again, can preserve the exemption. Our guide to tax residency when moving overseas covers how residency is tested.
Watch out: Every seller of Australian real property, including Australian residents selling their home, needs an ATO clearance certificate before settlement. Without one, the buyer must withhold 15% of the price for the ATO. Apply early, because it can take time.
What about inherited homes and deceased estates?
A home inherited from someone who died can be exempt if:
- it was the deceased's main residence just before death and wasn't being used to produce income, and
- the executor or beneficiary sells it (contract date) within two years of the date of death, or
- from death until sale, it's the main residence of the deceased's spouse, a person with a right to occupy it under the will, or the beneficiary who sells it.
Homes acquired by the deceased before 20 September 1985 have their own rule. The ATO can extend the two-year period in some circumstances, such as a will dispute, and has a safe harbour for some delays. Waiting for the market to improve doesn't count.
The ATO issued a draft determination in 2026 on what counts as a "right to occupy under the will". Its draft view is that the right must be explicitly granted in the will to a named individual. Broad trustee discretions are generally not enough. It's a draft, but it matters for anyone drafting a will that leaves the home in a testamentary trust. Our guide to testamentary trusts covers the will side.
Can a home owned by a family trust or company get the exemption?
Generally no. The exemption is only for individuals (and for deceased estates and special disability trusts in specific cases). A home owned by a discretionary trust or a company is taxed on its full gain when sold, which is why most families keep the home in the name of the lower-risk spouse. Our guide to protecting the family home weighs protection against tax.
There are two narrow strategies, from our own planning work, that some families use to combine trust ownership with the exemption. Both need a solicitor and careful modelling.
- A right to occupy under a will. A will can leave the home on a testamentary trust while giving a named person the right to live there. The occupant's use can keep the exemption available for the estate's sale. Given the ATO's draft view, the right needs to be drafted precisely.
- A long-term lease. The tax law treats a person with certain long-term occupancy rights (such as a lease of 50 years or more) as holding an ownership interest in a dwelling. Granting such a lease over a home the trust already owns is a CGT event for the trust at the time of the grant, and attracts stamp duty and possibly land tax consequences. It can make sense when set up at the start; it is rarely cheap to retrofit.
These are specialist strategies. We model the tax and duty, a solicitor drafts the documents, and a private ruling is often sensible before anyone relies on them.
Mistakes we see with the main residence exemption
- Renting out a former home for more than six years without realising the clock was running, or without moving back in to reset it.
- No valuation when the home was first rented out, leaving a guess about value years later.
- Claiming two main residences at once, for example a city apartment and a weekender, or a couple each claiming their own home without making the required choice.
- Selling after becoming a foreign resident and losing the whole exemption.
- Subdividing the backyard and selling the vacant block, assuming it's covered by the exemption. It isn't.
- Short-stay letting (such as part of the home on a booking platform) that makes part of the home income-producing.
- Executors waiting more than two years to sell a deceased's home without a reason the ATO accepts.
- Buying a home in a family trust for protection, without realising the tax cost on sale.
How BPAG helps
We work out how much of the gain is exempt, choose the best combination of the timing rules, and make sure the records support it. Our capital gains tax advice service covers this.
- Calculating a partial exemption. Our capital gains tax agent works through the six-year rule, the market value rule and the days apportionment. Your accountant checks the facts and the choices, and signs off the calculation.
- Estimating a past value. Where there's no valuation from when you moved out, our historical property value agent produces an indicative value using market data, which your accountant reviews. For anything material, we'll recommend a registered valuer.
- Deceased estates. We work with executors on the two-year rule, extensions and the estate's returns.
- Trust-owned homes. We model the tax and duty on the occupancy strategies and brief your solicitor.
What to send us
- Purchase contract and settlement statement
- Dates you lived there, moved out, rented it and moved back, with evidence
- Any valuation at the time you first rented it or used it for business
- Sale contract (or expected price and date)
- Rental income and expense records if it was rented
- Your residency history if you've lived overseas
- For an inherited home: the will, date of death, and the deceased's use of the home
The AI agents draft. A qualified accountant reviews and signs off every calculation and every piece of advice. Wills, leases and trust deeds are prepared by a solicitor, and we work alongside them.
Frequently asked questions
Do I have to tell the ATO I'm claiming the main residence exemption?
If the full exemption applies, you generally don't report the sale as a capital gain in your tax return. You do need to keep records showing that it was your main residence, such as electoral enrolment, mail, utilities and where your family lived. If only a partial exemption applies, you report the taxable part.
Can a couple have two main residences?
Not two full exemptions at the same time. Spouses living in different homes must either choose one dwelling as the main residence for both, or nominate different dwellings, in which case the exemption is split for the period they overlap. The rules are strict, so get the choice right before either property is sold.
What if I build a house on vacant land?
You can choose to treat the land as your main residence for up to four years before you move in, provided the house is built, you move in as soon as practicable once it's finished, and you live there for at least three months. You can't treat another dwelling as your main residence for that period, apart from a limited overlap.
Is a granny flat or a subdivided block covered?
Land sold separately from the dwelling isn't covered. If you subdivide the backyard and sell the vacant block, that sale generally gets no main residence exemption. A granny flat rented to someone outside the family can make part of the property income-producing, and there's a separate CGT exemption for formal granny flat arrangements for older people or people with a disability.
I moved overseas. Can I still use the six-year rule?
You can treat the home as your main residence while you're away, but if you're a foreign resident on the day you sign the sale contract, you generally get no exemption at all for any period, unless the life events test applies. If you're planning to sell, it may be worth selling while you're still an Australian resident.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.