How the Main Residence Exemption Works
How it works
When you sell your home, the main residence exemption (MRE) under sections 118-110 to 118-150 of the ITAA 1997 can reduce or eliminate the capital gain. If the property was your main residence for the entire ownership period and was never rented out or used to produce income, the full gain is exempt — you pay zero CGT.
If the property was your main residence for only part of the time you owned it, the exemption is proportional. This calculator works out that proportion by dividing the number of days the property qualified as your main residence by the total number of days you owned it. The resulting exempt percentage is applied to the capital gain, and only the remaining portion is assessable.
The calculator also applies the 6-year absence rule (section 118-145), which lets you continue treating a property as your main residence for up to 6 years while it is rented out — provided you do not nominate another dwelling as your main residence during that period. If you move back in, the 6-year clock resets. For properties first rented out after being your home, the calculator can apply the market value substitution rule (section 118-192), using the property's market value at the date it was first used to produce income as the cost base instead of the original purchase price.
When to use this calculator
- You are selling (or have sold) a property that was your main residence for all or part of the time you owned it
- You rented out your home and want to check whether the 6-year absence rule covers the rental period
- You moved overseas and need to know how your residency status affects the exemption
- You converted your home into an investment property and want to understand the market value substitution rule
- You owned two properties at the same time and need to work out which one to nominate as your main residence
Key concepts
- Exempt proportion
- The fraction of the capital gain that is tax-free — calculated as main residence days divided by total ownership days. A property that was your main residence for 7 of 10 years has a 70% exempt proportion, meaning only 30% of the gain is assessable.
- 6-year absence rule
- Section 118-145 allows you to treat a property as your main residence for up to 6 continuous years while it is rented out, as long as no other property is nominated as your main residence. If you move back in, the 6-year window resets.
- Market value at first income-producing use
- Under section 118-192, if you lived in a property before first renting it out, you can elect to use the market value at the date it was first rented as your cost base. This locks in any capital growth that occurred while it was your home, so only the growth during the rental period is assessable.
- Foreign resident restriction
- Since 1 July 2020, foreign residents cannot claim the main residence exemption for any CGT event that occurs while they are a non-resident for tax purposes. Limited transitional rules for properties held before 9 May 2017 have now expired for most taxpayers.
Worked example — partial exemption after renting out
David bought a house in Brisbane in March 2014 for $520,000 and lived in it as his main residence. In July 2018 he moved interstate for work and rented the property out, choosing to apply the 6-year absence rule. He sold the property in March 2026 for $810,000.
Ownership period: 12 years (4,383 days) Main residence days: David lived in the property for 4 years, plus the 6-year absence rule covers the rental period from July 2018 to July 2024. The final 20 months (July 2024 to March 2026) exceed the 6-year window, so those days are not covered.
| Step | Detail | Amount |
|---|---|---|
| Capital gain | $810,000 − $520,000 | $290,000 |
| Main residence days | 4 years at home + 6 years absence rule | 3,653 days |
| Total ownership days | March 2014 to March 2026 | 4,383 days |
| Exempt proportion | 3,653 ÷ 4,383 | 83.4% |
| Exempt amount | $290,000 × 83.4% | $241,860 |
| Assessable gain | $290,000 − $241,860 | $48,140 |
| After 50% CGT discount | $48,140 × 50% | $24,070 |
David includes $24,070 in his assessable income for the year. The CGT he actually pays depends on his marginal tax rate and other income. If David had sold before July 2024 — within the 6-year absence window — the entire gain would have been exempt.