Capital Gains Tax & Your Main Residence: What You Need to Know

The Australian Taxation Office (ATO) continues to focus on Capital Gains Tax (CGT) compliance, particularly around dwellings that are partly used as a main residence. Selling your home isn’t always tax-free — especially if you’ve rented it out, run a business from it, or moved out for a period.

This factsheet outlines when the main residence exemption applies, when it may be reduced, and how to plan effectively to minimise tax.

✅ When Is a Capital Gain Exempt?

You may qualify for a full CGT exemption when you sell your home if:

• The property has been your main residence the entire time you've owned it
• It was not used to earn income, such as renting it out or using it for business
• The land is 2 hectares or less

If all these apply, there’s no CGT payable upon sale.

⚠️ When a Partial CGT Applies

The exemption may be partially removed if any of the following occurred:

1. You Rented Out the Home

Even temporary rentals (e.g. Airbnb or tenants while overseas) can reduce your exemption.

2. You Moved Out but Kept the Property

You can generally treat the property as your main residence for up to 6 years while it's rented out (the “six-year rule”), but only if no other property is nominated as your main residence in that time.

3. You Used the Property for Business

If you used part of your home to earn income (like a home office, salon, or clinic), that portion may not qualify for the CGT exemption.

4. You Owned Multiple Properties

Only one property can be treated as your main residence at any one time. You must nominate which property is exempt.

5. You Inherited the Property

Special CGT rules apply to inherited dwellings, and the main residence exemption depends on whether the deceased and/or beneficiary lived in the property and the timing of the sale.

📅 CGT Planning Strategies

Before you sell, consider these steps to manage your tax exposure:

• Keep Records: Hold detailed documentation of:
• Dates of residence
• Rental periods and agreements
• Business use or renovations
• Understand Your Main Residence Periods: Especially when moving out or renting
• Consider the 6-Year Rule: This rule can preserve your exemption, but only if applied correctly
• Avoid Unintended Triggers: Short-term Airbnb use or claiming home office deductions can jeopardise the exemption

Even small details — like short-term rentals or home-based work — can affect your CGT exemption. Speak to us before signing a contract or moving out. With proactive planning, we can help reduce or eliminate your tax liability.

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The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Falconbridge office or Luera office in Blue Mountains office to arrange a one-on-one consultation. Just Book Free Consulation up on the right to find the appointment options.

 Yan Qi CA

Mobile: 0403 050 779

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.