CGT Main Residence Exemption


  • What is exempt?
  • When is a dwelling a main residence?
  • Moving into a dwelling
  • Changing main residences
  • Absences
  • Foreign Residents
  • Building, repairing or renovating a building
  • Destruction of a building
  • Using the dwelling for income producing purposes
  • Record keeping requirements

The capital gains tax (CGT) provisions in the Income Tax Assessment Act 1997 (ITAA 1997) do not apply to the disposal of the main residence where certain conditions are met. Generally, this means that where an individual sells the main residence, no CGT is payable unless the residence has been used for income producing purposes.

The provisions that relate to this exemption can be found in Subdivision 118-B ITAA 1997. This exemption is only available to individuals.

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What is exempt?

The main residence exemption applies to:

  • a ‘dwelling’ which is the main residence;
  • the land under the dwelling; and
  • up to 2 hectares of adjacent land to the extent it is used for private or domestic purposes in association with the dwelling. If the land exceeds 2 hectares, the taxpayer can select which 2 hectares the main residence exemption applies to – Taxation Determination TD 1999/67
  • a garage, storeroom or other structure associated with a flat or home unit (if the same CGT event happens to the structure or the ownership interest in it). However, it extends only to the extent that the structure is used primarily for private or domestic purposes in association with the flat or home unit.

Adjacent land will only qualify for the exemption to the extent it is used for private or domestic purposes in association with the dwelling.

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When is a dwelling a main residence?

The term “main residence” is not defined in the tax legislation.

However, Taxation Determination TD 51 (TD 51 is withdrawn but the factors it lists are still relevant) lists factors the ATO will consider in determining whether a dwelling is the main residence. They include but are not limited to:

  • the length of time the taxpayer has lived in the dwelling
  • the place of residence of the taxpayer’s family
  • whether the taxpayer has moved his or her personal belongings into the dwelling
  • the address to which the taxpayer has his or her mail delivered
  • the taxpayer’s address on the Electoral Roll
  • the connection of services such as telephone, gas and electricity
  • the taxpayer’s intention in occupying the dwelling

The relevance and weight to be given to each of these or other factors will depend upon the circumstances of each case.

Also, note that the first homeowners’ grant and the stamp duty rules have their requirements with respect to whether a dwelling will be regarded as a home.

Moving into a dwelling

The main residence exemption is extended to take account of the time needed to move into a dwelling (i.e. from acquisition until it is first practicable for the individual to move into the dwelling).

Section 118-135 provides that: If a dwelling becomes your main residence by the time it was first practicable for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it became your main residence.

This takes account of situations where, for example, there is a delay in moving in because of illness or other reasonable cause.

The exception does not extend to cases where an individual is unable to move into the dwelling because it is being rented out, or because the individual is unable to move in because he is working somewhere else – see AAT Case [2009] AATA 890, Re Caller and FCT and AAT Case [2009] AATA 41, Re Couch and FCT.

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Changing main residences

Section 118-140 provides that when changing residences, the period during which an individual can have the CGT exemption for 2 dwellings is up to 6 months so long as:

  • the old dwelling was the main residence for a continuous period of at least 3 months in the previous 12 months; and
  • during those 12 months, it was not used to produce assessable income while it was not the main residence.

Ken and Sharon sign a contract to purchase a new home in July. Their previous house lies vacant and is not sold until three months later. They are entitled to a full exemption upon the sale of their previous main residence as they satisfy the requirements of sections 118-140.


Section 118-145 provides that if certain conditions are satisfied if a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

It is reproduced as follows:

If a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

If you use the part of the dwelling that was your main residence to produce assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.

If you do not use the dwelling for that purpose, you can treat it as your main residence under this section indefinitely.

If you make the choice, you cannot treat any other dwelling as your main residence while you apply this section, except if section 118-140 (about changing main residences) applies.

You live in a house for 3 years. You are posted overseas for 5 years and you rent the house out during your absence. On your return, you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house.

You have not treated any other dwelling as your main residence during your absences.

You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years.

You can make this choice when preparing your income tax return for the income year in which you sold the house.

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Foreign Residents

Foreign residents are no longer entitled to any main residence exemption for disposals of property unless one of the life events tests are satisfied. Previously, where a foreign resident sold their main residence before 30 June 2020, they could apply the main residence exemption to reduce the capital gain to nil and ignore any capital losses.

To meet the life events test and have a main residence exempt from CGT, both of the following need to be satisfied:

  • the individual was considered to be a foreign resident for tax purposes for a continuous period of six years or less; and
  • during that period, one of the following occurred:
    – the foreign resident, their spouse, or their child under 18 had a terminal medical condition;
    – the spouse of the foreign resident or their child under 18 passed away; or
    – the CGT event occurred due to a formal agreement following the breakdown of a marriage or relationship.

It must be noted that in addition to the above criteria, the general requirements for the main residence exemption also need to be satisfied. This includes having the dwelling be the home of the foreign resident, their partner, and other dependents for the whole ownership period, not using the dwelling to produce income or run a business, and if dwelling is on land of two hectares or less.

Where the conditions of the life events test and other general conditions are met, the foreign resident is able to claim the main residence exemption and use that exemption as the reason to vary the capital gains withholding that would otherwise apply to the sale of their residence.

If a foreign resident does not meet the life events test conditions and sells a property even if it is their main residence, no exemptions can be applied. However, they may be able to apply a 50% CGT discount under certain circumstances.

The 50% CGT discount can be applied to part of a capital gain when a foreign resident sells any Australian property if either of the following applies:

  • the asset was acquired on or before 8 May 2012; or
  • the foreign resident had a period of Australian residency after 8 May 2012.

In instances where either of the above conditions are met, the 50% CGT discount must be pro-rated for the number of days the foreign resident was an Australian resident after 8 May 2012. This is achieved by calculating the total number of residency days divided by the overall ownership days in the ownership period and calculating it as a percentage.

Any properties purchased after 8 May 2012 by a foreign resident that remains a foreign or temporary resident for the entirety of the ownership will not be entitled to any CGT discount when sold. For any foreign residents who want to avoid selling their property and triggering CGT provisions, it should be noted that these rules also apply when a foreign resident for tax purposes passes away. The rules will apply to legal personal representatives, trustees and beneficiaries of the deceased estate, surviving joint tenants, or any special disability trusts.

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Building, repairing, or renovating a building

People who build, repair or renovate a dwelling on land that they already own may be able to treat the land as their main residence for up to four years before taking up residence – section 118-150.

The dwelling will be regarded as the main residence from the time the land was owned.

The dwelling which is built, repaired or renovated must become the main residence as soon as practicable after the work is finished and it must continue to be the main residence for at least 3 months.

No other dwelling can be treated as the main residence during this time.

The time limit for applying this section is the earlier of:

  • 4 years before the dwelling becomes the main residence; or
  • the period starting from when the land was acquired to when the dwelling becomes the main residence.

If there was already a dwelling on the land and the taxpayer or someone else occupied it, the section 118-150 period starts when that dwelling ceases to be occupied.

Graham’s house which has always been his main residence was destroyed in a bush fire. He built a new dwelling on the land.

He will qualify for a full main residence exemption for the dwelling that was built to replace his earlier house that was destroyed provided he makes a valid choice under sections 118-150 to treat the land on which the new dwelling was constructed as his main residence from the time that he last occupied the destroyed premises.

He must also meet the other requirements for the full main residence exemption.

It does not matter whether the demolition or destruction of the first dwelling was voluntary or involuntary – ID 2003/232.

Destruction of a building

Section 118-160 provides the main residence exemption applies if a dwelling that is the main residence is accidentally destroyed and the land is disposed of without another dwelling being built on it and no other dwelling is treated as the person’s main residence at any time when the land was owned.

If these conditions are satisfied, there is no period for the disposal of the land.

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Using a dwelling for income producing purposes

Normally when a CGT event happens to a dwelling that is not the main residence for the whole time of ownership, only a partial exemption is allowed based on the number of days it was the main residence – section 118-185.

The formula for determining the capital gain or loss is:

Capital gain/loss x non-main residence days/days in the ownership period.

Example 1
Joe buys a house and rents it out for 129 days and then lives in it for 505 days. He owns it for a total of 634 days.

If his capital gain on selling the house was $30,000, then the taxable portion is $30,000 x 129/634 = $6104.

If the dwelling is not used 100% for income producing purposes, then the capital gain will be an amount that is reasonable having regard to the amount of interest that would be deductible if the owner had borrowed to acquire the house and incurred interest on the borrowing – s 118-190.

Example 2
Bill buys a house and lives in it for 3,000 days. He used a ¼ of the house for business purposes for the first 1,000 days. As Bill is running a business in part of his home, he would be entitled to deduct part of the interest on any money borrowed to buy the home.

Therefore, if his capital gain on selling the house was $30,000, then the taxable portion is $30,000 x 1,000/3,000 x ¼ = $2,500.

If a deduction for any interest on money borrowed to buy the home is not claimed, the section can still apply. It is the entitlement to interest that makes part of the gain on the sale of the dwelling taxable.

Depending on the circumstances, there are special rules that may be applicable to reduce any capital gain made. One is the absences rule referred to earlier.

Another is the rule in sections 118-192 that provides that if the dwelling is your main residence and is then used to produce income for the first time only a part exemption from CGT will be available when it is sold, the first time the dwelling is used for income producing purposes, it is taken to be acquired for its market value at that time. This means in calculating the capital gain, the cost base will be the market value at that time.

Example 3
John bought his unit for $200,000 and lived in it for 10 years. He then commenced a home-based business that covered 9% of the floor area of the house. At that stage, the market value of his unit was $300,000. He sold the unit 10 months later for $330,000.

Section 118-192 will apply to deem his cost base to be $300,000.

His capital gain will be ($330,000 – $300,000) x 9% = $2,700.

Record keeping requirements

There is a requirement to keep records of every act, transaction, event or circumstance that can reasonably be expected to be relevant to working out whether a capital gain or loss has been made from a CGT event.

Penalties may apply if records are not kept for at least five years after the last relevant CGT event.

In the context of the main residence, relevant records would include those that relate to:

  • when any home-based business started
  • the proportion of the floor area dedicated to earning income, and a record of any changes (e.g. extensions to the home, extension of office space)
  • the market value of the home when income-producing activity commences

This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.