Your main residence, typically your home, is generally exempt from capital gains tax (CGT) if the following conditions are met:
- Australian Residency: You must be an Australian resident.
Period of Ownership: The dwelling must have been the home of you, your partner, and other dependents for the entire period you have owned it. - Non-Income Producing: The property hasn’t been used to produce income. This means you haven’t run a business from it or rented it out.
- Non-Profit Activity: The property hasn’t been used for profit-making activities such as ‘property flipping’ (buying, renovating, and selling for profit).
- Land Size: The property is situated on land of 2 hectares or less.
If you meet these conditions, you can claim a full main residence exemption. This means you won’t pay any tax on the capital gain when a CGT event occurs (such as when you sell the property), and you can disregard any capital loss.
If you don’t meet all these conditions, you may still qualify for a partial main residence exemption. In this case, you need to report both capital gains or losses and the main residence exemption in your tax return
What is a Main Residence?
A property is generally considered your main residence if it meets the following criteria:
- Occupation: You and your family live in it.
- Personal Belongings: Your personal items are kept there.
- Mail Delivery: It’s the address where your mail is delivered.
- Electoral Roll: It’s listed as your address on the electoral roll.
- Connected Services: Services like gas and electricity are connected.
For a property to qualify as your main residence, it must have a dwelling on it, and you must have lived in that dwelling. You can only have one main residence at a time, except when you buy a new home before selling your old one. In such cases, you can treat both properties as your main residence for up to six months.
What is a Dwelling?
A dwelling is any structure used primarily for residential accommodation. This includes:
- House or Cottage
- Strata Title Unit
- Apartment or Flat
- Unit in a Retirement Village
- Caravan, Houseboat, or Mobile Home
When to Report Your Capital Gain, Loss, or Main Residence Exemption
When you sell your property, the date of the CGT event is the date you sign the contract of sale, not the settlement date.
Example: If you sign the contract on 29 June 2023 and settle on 1 August 2023, you need to report this in the 2022-23 income year.
In your tax return for the income year in which you signed the contract, you must report:
- The capital gain or capital loss.
- Whether you’re claiming the main residence exemption.
Main Residence Exemption Eligibility – Common Scenarios
Refer to the following common scenarios to understand your eligibility for a main residence exemption and what you need to report in your tax return after selling your property.
Common Scenarios for Main Residence Exemption and Tax Reporting
Scenario | Eligibility for Main Residence Exemption (MRE) | What to Include in Your Tax Return |
|---|---|---|
Lived in home entire ownership period, home on >2 hectares | Eligible for partial MRE for the area your house is on, up to 2 hectares. The rest is subject to CGT. For more information, see Home on more than 2 hectares. | Report MRE. Report CGT gain or loss amount. |
Lived in property before renting it out for ≤6 years | May claim a full MRE, but not for another property for the same period. If treating former home as main residence and rented for ≤6 years until sale, report MRE. For more information, see Treating former home as main residence. | Report MRE. |
First lived in property, then rented out >6 years | Eligible for partial MRE. Treat property as main residence for period lived in and first 6 years rented, but not for another property for the same period. CGT applied for remaining time rented until sale. For more information, see Treating former home as main residence. | Report MRE. Report CGT gain or loss amount. |
Rented property out before moving in | Eligible for partial MRE. CGT applied to period rented before living in property. Includes when tenants remain after settlement. For more information, see Using your home for rental or business. | Report MRE. Report CGT gain or loss amount. |
Used part of home to earn rental income | Eligible for partial MRE for part of home not used to produce assessable income. Includes renting part of property on platforms like Airbnb or Stayz. For more information, see Using your home for rental or business. | Report MRE. Report CGT gain or loss amount. |
Used part of home to run a business | Eligible for partial MRE for part of home not used to produce assessable income. Running a business from home means it’s your principal place of business with a designated space. Occasional working from home does not qualify. For more information, see Using your home for rental or business. | Report MRE. Report CGT gain or loss amount. |
Common Scenarios for Main Residence Exemption Ineligibility and Tax Reporting
Scenario | During Property Ownership Period | Eligibility for Main Residence Exemption (MRE) | What to Include in Your Tax Return |
|---|---|---|---|
Own home and holiday house | If you own two homes at the same time (e.g., your home and a holiday house), you can only apply the MRE to one property at a time. A holiday house can only be treated as your main residence if you move into the property and live in it as your main residence. | Not eligible for MRE on holiday house if claiming MRE for your home. | Report MRE for your home. Report CGT gain or loss amount for holiday house. |
Rented the property and never lived in it | You rented out the property but never lived in it. | Not eligible for MRE. | Report CGT gain or loss amount. |
Bought vacant land but didn’t build | You bought vacant land intending to build a new home but sold it as vacant land without building. | Not eligible for MRE. | Report CGT gain or loss amount. |
Demolished home and sold as vacant land | You demolished your home and sold the property as vacant land. | Not eligible for MRE, even if you lived in the house before demolishing it. | Report CGT gain or loss amount. |
Subdivided property and sold new subdivision | You subdivided a block and sold the new subdivision as vacant land. | Not eligible for MRE. | Report CGT gain or loss amount. |
Subdivided property, built new house, and sold it | You subdivided the property your home is on, built a house on the new subdivision, then sold it. | Not eligible for MRE for the new subdivided property. | Report CGT gain or loss amount. |
Foreign resident selling property after 30 June 2020 | You sold your property after 30 June 2020 as a foreign resident. | Not eligible for MRE unless you satisfy the life events test. | If life events test not satisfied: Report CGT gain or loss amount and claim any CGT foreign resident withholding credit. If life events test satisfied: Report MRE and claim any CGT foreign resident withholding credit. |
Common Scenarios for Eligibility for a Full Main Residence Exemption
Scenario | During Property Ownership Period | Eligibility for Main Residence Exemption (MRE) |
|---|---|---|
Lived in your home the entire time, without earning rental or business income | You lived in your home the entire time you owned it and did not earn any income from renting it out or running a business from home. | You are eligible for a full MRE. For more information, see Eligibility for main residence exemption. |
Moved into a new home before selling the old one | You moved into your new home before selling your old home. | You are eligible for a full MRE. You can treat both properties as your main residence for up to six months when you acquire a new home before you sell your old one. For more information, see Moving to a new main residence. |
Occasionally work from home, but not as a place of business | You occasionally work from home, but your home is not your principal place of business. |
Common Scenarios for Eligibility for a Full Main Residence Exemption
Scenario | During Property Ownership Period | Eligibility for Main Residence Exemption (MRE) |
|---|---|---|
Inherited property from an Australian resident | You are an Australian resident and inherited the property from an Australian resident. | Eligible for a full MRE if the property was the deceased person’s main residence prior to their death and you dispose of the property within 2 years. This includes renting it out during the 2 years after their death. For more information, see Inherited property and CGT. |
Built or renovated home on owned land | You built or renovated your home on land you own. | Eligible for a full MRE for up to 4 years before you move in if you: – Move into your home as soon as practicable after it’s finished. – Continue to use it as your main residence for at least 3 months. – Don’t claim the exemption for another property for the same period. For more information, see Building or renovating your home. |
Demolished and rebuilt home | You demolished your home and built a new one. | Eligible for a full MRE if the home was originally your main residence, you demolished and rebuilt within 4 years, and moved back in. Apply the MRE from the date your original home was purchased. You can’t claim a MRE for another property for the same period. For more information, see Building or renovating your home. |
Subdivided property but stayed in original residence | You subdivided your property and remained in your original residence. | Eligible for a full MRE for your original main residence. You will need to report a capital gain or loss on the subdivided land. For more information, see Subdividing and combining land. |
Home accidentally destroyed (e.g., by natural disaster) and sold as vacant land | Your home is accidentally destroyed and you sell the vacant land. | Eligible for a full MRE as the land is treated as if the home wasn’t destroyed. If you acquire a new home before disposing of the land, you can treat both as your main residence for up to 6 months. For more information, see Destruction of your home. |
Granny flat arrangement involving your main residence | You create a granny flat arrangement involving your main residence. | Eligible for a full MRE. The creation, variation, or termination of a granny flat arrangement does not affect the main residence exemption as it’s a right to occupy the property, not a right to the property itself. For more information, see Granny flat arrangements and CGT. |
Foreign Residents and Main Residence Exemption
If you were not an Australian resident for tax purposes while living in the property, you are unlikely to meet the requirements for the main residence exemption.
If you are a foreign resident at the time a CGT event occurs with your residential property in Australia (such as selling it), you may not be entitled to claim the main residence exemption.
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Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.
