Main Residence Exemption Guide

The main residence exemption (MRE) under section 118-110 of the Income Tax Assessment Act 1997 is the single most valuable CGT concession available to Australian individuals. It allows you to disregard all or part of a capital gain (or capital loss) you make when you sell your home — your main residence.

For most Australians who buy a home, live in it, and sell it years later, the exemption means zero CGT. The entire gain is disregarded. No special form. Nothing to report on your tax return. The gain simply doesn't exist for tax purposes.

But the MRE is not a blanket rule. There are three possible outcomes when you sell a property:

1. Full exemption — you lived in the property the entire time, never rented it out, and were an Australian resident at sale. The entire gain is CGT-free.
2. Partial exemption — you lived in it for part of the ownership period, or rented it out for a time, or were absent for more than 6 years. A proportion of the gain is exempt; the rest is assessable.
3. No exemption — you never lived in it as your main residence, or you were a foreign resident for tax purposes at the time of sale (since 1 July 2020).

This guide covers each scenario in detail, including the 6-year absence rule, the market value rule, and the traps that catch people who assume they're exempt when they're not. If you're new to CGT in general, start with our What is Capital Gains Tax? guide.

Your main residence is your sole or principal dwelling — the place where you and your family primarily live. The legal test is objective, not just based on your intention or what you write on a form.

The ATO considers a range of factors to determine whether a property is genuinely your main residence:

• Where your family lives — if you have a spouse and children, the dwelling where they reside is a strong indicator
• Your electoral enrolment — where you're registered to vote
• Where you receive mail — your mailing address for banks, government agencies, and correspondence
• Your driver's licence address — the address shown on your licence
• Where your personal belongings are kept — furniture, clothing, personal items
• Utility connections — electricity, gas, internet, and water accounts in your name at the address
• How long you have lived there — the duration and pattern of your occupation
• Your stated address for government purposes — Medicare, Centrelink, myGov, and other services

No single factor is decisive. The ATO looks at the overall picture. A dwelling includes a house, unit, apartment, townhouse, flat, or even a caravan, houseboat, or other structure that is primarily used for residential accommodation.

One main residence at a time

You can only have one main residence at any given point in time. If you own multiple properties, only one can be your main residence. There is a limited overlap concession when you're moving between homes (see the multiple properties section), but outside that narrow window, you must choose.

If you're a couple, both spouses must treat the same property as their main residence. You cannot split — one spouse claiming the city apartment while the other claims the holiday house.

The simplest and most common scenario: you bought a home, lived in it as your main residence for the entire time you owned it, and sold it. If all the following conditions are met, you pay zero CGT on the sale:

1. The property was your main residence for the entire ownership period — from the day you acquired it to the day you sold it (or entered into the contract of sale)
2. It was never used to produce income — you never rented it out, never rented a room to a tenant, and never used it as business premises
3. The land is 2 hectares or less — the dwelling plus its adjacent land doesn't exceed approximately 5 acres
4. You were an Australian resident for tax purposes at the time of the CGT event — this has been required since 1 July 2020 (see the foreign resident section)

What "never used to produce income" means

This condition catches more people than you'd expect:

• Renting out a room — if you rented a spare room to a tenant (including through platforms like Flatmates or Facebook Marketplace), the property was used to produce income during that period
• Airbnb — listing your home or a room on Airbnb, Stayz, or similar platforms makes the property income-producing for those periods
• Granny flat — if you have a granny flat on your property and rent it to a tenant, the property is income-producing
• Home office — using a room as a home office does not automatically make the property income-producing. The ATO draws a distinction: if you claim occupancy expenses (a proportion of mortgage interest, rent, rates, insurance) for the office area, you're treating part of the dwelling as income-producing. If you only claim running expenses (electricity, phone, internet, decline in value of equipment), the full exemption is preserved. Most employees and small-business operators only claim running expenses, so the MRE is unaffected.

If you meet all four conditions, there is nothing to include on your tax return. The gain is completely disregarded.

The 6-year absence rule is the most searched-for topic in Australian property CGT, and for good reason — it's the rule that determines whether you can rent out your home and still claim the MRE when you sell.

How it works

Under section 118-145 of the ITAA 1997, if you move out of your main residence, you can continue to treat it as your main residence for CGT purposes for up to 6 years, even if you rent it out during that time. If the property is not rented out (left vacant), there is no time limit — you can treat it as your main residence indefinitely.

The three conditions

For the 6-year absence rule to apply:

1. You must have actually lived in the property as your main residence before moving out — the property must have been your main residence at some point. If you bought it as an investment and never lived in it, this rule doesn't apply.
2. You must not treat any other dwelling as your main residence during the absence — this is the critical restriction. If you buy a new home and start living in it (treating it as your main residence), the absence rule stops applying to the old property.
3. The absence must not exceed 6 years (if the property is rented out) — if you leave it vacant, there's no limit. But the moment you derive rental income from it, the 6-year clock starts ticking.

How the clock works

• The 6-year period starts from the date you move out (or the date you first rent it out, if later)
• If you move back in and genuinely re-establish the property as your main residence — even briefly — the 6-year clock resets. A new 6-year period begins the next time you move out.
• If you rent it out for exactly 6 years or less, the full exemption is preserved for that period
• If you rent it out for more than 6 years, the exemption becomes partial — you get credit for the years you lived there plus up to 6 years of covered absence, but the excess is not covered

What happens if the absence exceeds 6 years

If you exceed the 6-year limit, the exemption doesn't disappear entirely. Instead, it becomes a partial exemption. The MRE covers the days you actually lived there, plus up to 2,190 days (6 years) of absence. The remaining days are non-exempt, and a proportionate share of the gain is assessable.

The "one property at a time" trap

This is the mistake that costs the most money. Here's a common scenario:

James and Mia own a house in Sydney. They move to Melbourne for work in 2019 and rent out the Sydney house. In 2021, they buy a townhouse in Melbourne and move in.

The moment James and Mia treat the Melbourne townhouse as their main residence, the Sydney house stops being covered by the absence rule. The 6-year clock is irrelevant — the rule requires that no other property is treated as their main residence.

They have a choice:

• Treat the Sydney house as their main residence (under the absence rule) and accept that the Melbourne townhouse will be subject to CGT when sold
• Treat the Melbourne townhouse as their main residence and accept that the Sydney house's exemption ends when they moved to Melbourne

They cannot have it both ways. The choice is made at tax time, and they should pick the option that produces the better overall tax outcome.

When you don't qualify for a full exemption — because you rented the property out, were absent for more than 6 years, or only lived in it for part of the ownership period — the MRE becomes a partial exemption. A proportion of the gain is exempt, and the rest is assessable.

The formula

Assessable gain = Total capital gain × (Non-main-residence days ÷ Total ownership days)

Or equivalently:

Exempt proportion = Main residence days ÷ Total ownership days

What counts as "main residence days"

• Days you actually lived in the property as your main residence
• Days covered by the 6-year absence rule (up to 2,190 days per absence period)
• Days during the overlap concession when moving between homes (up to 6 months)

Worked example

Lisa bought an apartment in Melbourne in July 2014 for $450,000 (including stamp duty and legal fees in her cost base: total cost base $475,000). She lived in it until June 2018, then moved to London for work and rented the apartment out. She did not buy a property in London (she rented). She returned to Australia and sold the apartment in June 2026 for $720,000.

• Main residence days: 1,461 + 2,190 = 3,651 days
• Non-main-residence days: 730 days
• Exempt proportion: 3,651 ÷ 4,381 = 83.3%
• Capital gain: $720,000 − $475,000 = $245,000
• Assessable gain: $245,000 × (730 ÷ 4,381) = $40,835
• Exempt amount: $245,000 − $40,835 = $204,165

Lisa held the property for more than 12 months, so the 50% CGT discount applies to the assessable portion:

• Discounted gain: $40,835 × 50% = $20,418

This $20,418 is added to Lisa's assessable income for the year and taxed at her marginal rate. At a 37% marginal rate (plus 2% Medicare levy), the tax on this amount would be approximately $7,963.

The partial exemption is calculated before the 50% CGT discount is applied.

If you lived in a property as your main residence first and then started using it to produce income (typically by renting it out), you have a valuable choice: you can elect to treat the property's market value on the date it was first used to produce income as its cost base for CGT purposes.

This is section 118-192 of the ITAA 1997, and it's one of the most powerful — and most overlooked — tax planning tools available to homeowners who later become landlords.

Why it matters

In a rising property market, the market value at the date you start renting will be higher than your original purchase price. By resetting the cost base to this higher market value, you effectively lock in the capital growth during the period you lived there as tax-free (covered by the MRE) and only pay CGT on the growth during the rental period.

When to use it

• Use it when the market value at first income date is higher than your original cost base (the market went up while you lived there)
• Don't use it when the market value at first income date is lower than your original cost base (the market fell — sticking with the original cost base gives you a smaller gain or a larger loss)

Worked example

In this example, electing the market value rule reduces the capital gain by $150,000. After the partial exemption calculation and the 50% CGT discount, this could mean $25,000–$30,000 less tax, depending on your marginal rate.

How to prove the market value

The ATO doesn't require a formal valuation at the time you start renting, but you need a reasonable basis for the value you claim. Options include:

• A licensed valuation obtained at or near the date — the gold standard, costs $300–$600 for a standard residential property
• A bank valuation — if you refinanced around that time, the bank's valuation is useful evidence
• Automated valuation model (AVM) reports — services like CoreLogic, PropTrack, or Domain Home Price Guide can provide a retrospective estimate
• Comparable sales data — recent sales of similar properties in the same area around the relevant date

The further you are from the date, the harder (and more expensive) it is to get a reliable retrospective valuation. That's why getting a valuation at the time is so much better than trying to reconstruct one years later.

This is the rule that has shocked thousands of Australian expats. Since 1 July 2020, if you are a foreign resident for Australian tax purposes at the time you sell your home, you cannot claim the main residence exemption at all. The entire capital gain is assessable.

It doesn't matter if you bought the home 30 years ago, lived in it for 25 of those years, and only moved overseas recently. If your tax residency status is "foreign resident" on the day the CGT event happens (typically the contract date), the MRE is completely denied.

What "foreign resident" means

"Foreign resident" for tax purposes is not the same as your citizenship or visa status. You can be an Australian citizen living overseas and still be classified as a foreign resident for tax purposes. The test is based on where your permanent place of abode is, your domicile, and your physical presence in Australia over the income year.

Common situations that make you a foreign resident:

• You've relocated overseas for an indefinite or extended period (typically 2+ years)
• Your spouse and children have moved with you
• You've set up a permanent home overseas
• You don't have a home maintained and ready for your use in Australia

Transitional provisions — now expired

When this measure was announced in the 2017 Federal Budget, there were transitional rules: if you held the property before 9 May 2017 and sold it before 30 June 2020, the old rules applied (foreign residents could still claim the MRE). That deadline has passed. The only remaining exceptions are for certain life events:

• Terminal medical condition
• Death of your spouse or child
• Divorce or separation (property transferred under a court order or binding financial agreement)
• Compulsory acquisition by a government authority

Outside these life events, there is no exception.

What this means for expats

If you own your home and are considering an overseas move:

• Sell before you leave — if you're confident you'll become a foreign resident, selling while still an Australian tax resident preserves the MRE
• Monitor your residency status — the change doesn't happen on the day you board the plane. It depends on the facts and circumstances of your departure. Get a private ruling from the ATO if you're unsure.
• Return before selling — if you've already moved overseas, returning to Australia and re-establishing tax residency before entering into the contract of sale will preserve the MRE. But this must be genuine — a short visit won't change your residency status.
• Factor CGT into your decision — on a Sydney home that's appreciated by $500,000, losing the MRE could mean $100,000+ in CGT. This should be part of your relocation planning.

For a deeper look at how CGT works for non-residents, see our Foreign Resident CGT Rules guide.

If you own more than one property, only one can be your main residence at any given time. This is a facts-based determination — there is no form you lodge with the ATO to nominate your main residence. The ATO determines it from the objective evidence of where you actually lived.

The 6-month overlap concession

When you're genuinely moving between homes (selling the old one and moving into the new one), the ATO provides a 6-month overlap concession. Both properties can be treated as your main residence simultaneously for up to 6 months, provided:

1. The new dwelling becomes your main residence within those 6 months — you must actually move in
2. The old dwelling was your main residence for a continuous period of at least 3 months in the 12 months before you sell it
3. The old dwelling was not used to produce income (not rented out) during the overlap period

If all three conditions are met, the old property's MRE is preserved even though you technically had two properties during that brief overlap.

Making the strategic choice

If you owned two properties during the same period and sell one, you need to determine which property was your main residence during the overlap. This is where it gets strategic:

• The choice is effectively made when you lodge your tax return for the year of sale. There's no advance nomination form.
• The optimal choice is typically the property that produces the better overall tax outcome — usually the one with the larger capital gain or the one where the MRE covers a longer proportion of ownership.
• Once you claim the MRE on a property in a tax return, you've committed to that choice for that period. You can't go back and change it later.

Couples

If you're part of a couple (married or de facto), you cannot each nominate a different property. You must both claim the same dwelling as your main residence. The ATO treats a couple as a single household — if one partner claims Property A and the other claims Property B, both claims can be denied.

The holiday house myth

A common misconception: "I spend every weekend and all school holidays at the beach house, so it's my main residence." Occasional or seasonal use does not make a property your main residence. It must be where you primarily and habitually live. A property you visit on weekends — no matter how frequently — is not your principal place of residence if you sleep in a different dwelling five nights a week.

When someone dies, their main residence can pass to a beneficiary — through a will or intestacy — with potential MRE coverage. The rules depend on when the property was acquired, whether the deceased was using it as their main residence at death, and how quickly the beneficiary sells.

The 2-year disposal rule

If the deceased's property was their main residence at the time of death (or was a pre-CGT asset acquired before 20 September 1985), and it was not being used to produce income at that time, the beneficiary can sell the property within 2 years of the date of death and claim the full main residence exemption. The entire gain from death to sale is disregarded.

The 2-year period runs from the date of death, not from the date of probate or the date the property title is transferred to the beneficiary.

After 2 years: partial exemption

If the beneficiary holds the inherited property for more than 2 years after the date of death, the full exemption no longer applies. Instead, a partial exemption is calculated:

• The period the property was the deceased's main residence counts as main residence days
• The period after death where the beneficiary used it as their own main residence also counts
• Any period where the property was not a main residence (rented out, vacant, or the beneficiary lived elsewhere) is non-exempt

Cost base for inherited properties

For properties acquired by the deceased after 20 September 1985 (post-CGT), the beneficiary's cost base is generally the property's market value at the date of death.

For pre-CGT properties (acquired before 20 September 1985), the cost base is the market value at the date of death if the beneficiary sells after that date. Pre-CGT assets get a cost base reset at death.

Commissioner's discretion to extend

The 2-year period can be extended by the Commissioner of Taxation in certain circumstances — for example, if the estate is tied up in a protracted probate dispute, or if natural disaster or illness prevents the sale. You need to apply for the extension before the 2-year period expires.

For the full picture on inherited assets, see our CGT on Inherited Property guide.

The MRE doesn't just cover the dwelling itself — it extends to the adjacent land used primarily for private or domestic purposes in association with the dwelling. But there's a hard limit: 2 hectares (approximately 5 acres), including the land the dwelling sits on.

What this means in practice

For most suburban and urban homeowners, the 2-hectare rule is irrelevant — a standard residential block is well under 2 hectares. But for rural and semi-rural properties, it's a critical consideration.

If your property exceeds 2 hectares:

• The MRE applies to the dwelling and the first 2 hectares of adjacent land
• The remaining land is treated as a separate CGT asset and is subject to CGT on sale
• You'll need a reasonable basis for apportioning the sale price between the exempt and non-exempt portions — typically a valuation that splits the property's value between the house block and the excess land

What "adjacent" means

The land must be adjacent to (next to or surrounding) the dwelling and used primarily for private or domestic purposes. This includes:

• Your garden, yard, and outdoor living areas
• A driveway and garage
• A swimming pool, tennis court, or shed used for personal purposes
• Paddocks used for personal horse-riding (not commercial agistment)

Land used primarily for commercial purposes — such as farming operations, a business premises, or commercial agistment — is not covered by the MRE, even if it's within the 2-hectare limit.

Structures on the land

A granny flat, studio, or secondary dwelling that's used in association with your main residence and for private purposes is generally covered. But if you rent a granny flat to a tenant, that portion of the property is income-producing and may affect your exemption.

This example brings together the key concepts from the guide — the partial exemption, the 6-year absence rule, and the market value rule — into a realistic scenario.

The scenario

Tom and Sarah bought a house in Brisbane in March 2015 for $550,000.

• Stamp duty: $11,800
• Legal and conveyancing fees: $1,500
• Total cost base at acquisition: $563,300

They lived in the house as their main residence until January 2019, then relocated to Perth for work. They rented the Brisbane house out from February 2019 onwards. They did not buy a property in Perth (they rented).

In December 2025, they sell the Brisbane house for $890,000.

• Agent commission (2.1%): $18,690
• Legal fees on sale: $1,800
• Total cost base (including selling costs): $563,300 + $18,690 + $1,800 = $583,790

Market value at first income date (February 2019): $640,000 (based on a bank valuation from a refinance at the time).

Step 1: Calculate the capital gain

Step 2: Check the 6-year absence rule

• Absence period: February 2019 to December 2025 = 6 years 10 months
• The absence exceeds 6 years → partial exemption applies
• They did not claim another property as their main residence (rented in Perth)

Step 3: Calculate main residence days

• Main residence days: 1,432 + 2,190 = 3,622
• Non-exempt days: 334
• Exempt proportion: 3,622 ÷ 3,956 = 91.6%
• Non-exempt proportion: 334 ÷ 3,956 = 8.4%

Step 4: Calculate assessable gain

The market value rule saves $6,443 in assessable gain.

Step 5: Apply the 50% CGT discount

Tom and Sarah held the property for more than 12 months, so the 50% discount applies:

Step 6: Tax impact

Assuming a 37% marginal rate + 2% Medicare levy (39% combined):

By electing the market value rule, Tom and Sarah save approximately $1,256 in tax. The total CGT on an $890,000 property sale that generated $306,210 in capital growth is just $3,760 — thanks to the combined effect of the partial MRE (91.6% exempt), the market value rule, and the 50% CGT discount.

The MRE is generous, but it has rules — and getting them wrong can mean an unexpected tax bill of tens of thousands of dollars. Here are the mistakes the ATO sees most often:

• Never actually lived in it. You bought a property "to live in eventually" but rented it out from day one. The MRE requires you to have actually occupied the dwelling as your main residence. Intention alone is not enough. No occupation means no exemption — not even a partial one.

• Exceeded the 6-year absence without realising. You moved out in 2017 and rented it continuously. You sell in 2024 — that's 7 years. The first 6 years are covered by the absence rule; the final year is not. The gain is partially assessable. Many people lose track of the timeline, especially when the rental is managed by an agent.

• Claimed two main residences simultaneously. You moved to a new city, bought a new home, and kept the old one rented out. If you treated the new home as your main residence (which the objective evidence likely shows), the old property's absence rule coverage ended on the day the new home became your main residence.

• Foreign resident at time of sale. You moved overseas 3 years ago and are now a foreign resident for tax purposes. You sell your Australian home. Since 1 July 2020, the MRE is completely denied for foreign residents. This applies even if you lived in the property for 20 years before leaving. The gain is fully assessable, and you also miss out on the 50% CGT discount (foreign residents don't qualify for that either on assets acquired after 8 May 2012).

• Didn't get a market valuation when they started renting. You moved out of your home and rented it in 2018. Now you're selling in 2026. You want to use the market value rule (s118-192) to reset your cost base, but you have no evidence of the property's value in 2018. A retrospective valuation is possible but less accurate, more expensive, and easier for the ATO to challenge. Getting a valuation at the time costs $300–$600 and can save thousands.

• Rented a room on Airbnb and claimed deductions. Listing a spare room on Airbnb or a similar platform means your property is being used to produce income. If you also claimed deductions for the rental (a portion of interest, rates, insurance), you've triggered the income-producing test and the full MRE may not apply. The gain needs to be apportioned between the private and income-producing use.

• Assumed granny flat income doesn't count. Renting a granny flat, studio, or secondary dwelling on your property to a tenant is income-producing use. It doesn't matter that you still live in the main house — the property as a whole is partially income-producing, and the MRE may need to be apportioned.

• Land exceeds 2 hectares. Rural property owners sometimes assume their entire block is covered. The MRE only applies to the dwelling and adjacent land up to 2 hectares. If your property is 10 hectares, 80% of the land is subject to CGT.

• Not keeping records "because it's my home." The ATO can query your MRE claim years after the sale. You need to be able to prove that you lived in the property and for how long. Keep your purchase contract, settlement statement, records of improvements, and any evidence of occupation (utility bills, electoral enrolment). If you rented the property at any time, keep the rental records showing the exact dates.