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If your property qualifies as your main residence, you can avoid capital gains tax (CGT) altogether when you sell. The main residence exemption, outlined by the Australian Taxation Office (ATO), allows homeowners to disregard capital gains on the sale of their home if they meet specific ownership, occupancy, and usage conditions.
For many Australians, understanding this exemption can mean saving tens of thousands in tax when selling their property.
What is Capital Gains Tax (CGT)?
Capital gains tax is applied when you sell an asset, such as property or shares, for more than you paid for it. The “gain” — the difference between the sale price and the purchase price — is added to your taxable income for that financial year.
However, if the asset is your main residence (principal place of residence), you may be exempt under the main residence exemption rules in the Income Tax Assessment Act 1997.
As explained by the ATO, this exemption allows you to disregard the entire capital gain or loss when selling your main home, provided you’ve lived in it for the whole ownership period and haven’t used it to generate income.
How the Main Residence Exemption Helps You Avoid Capital Gains Tax
1. Full Exemption — When Your Home Is 100% Private Use
If your home has been your main residence from the time you purchased it until the time you sell, and you’ve never rented it out or run a business from it, you can avoid capital gains tax completely.
Every dollar of profit you make from the sale is CGT-free.
The ATO advises keeping proof of continuous residence — such as utility bills, driver’s licence records, and electoral enrolment — to support your claim.
2. Partial Exemption — When You’ve Rented or Used the Home for Income
If your property was rented out or used to earn income for part of the time you owned it, you may still qualify for a partial main residence exemption.
The ATO’s guidance on using your home to produce income outlines how the taxable portion of your gain is calculated.
For instance, if you rented your property for 3 out of 10 years, roughly 30% of the capital gain may be taxable, depending on how much of the property was rented and for how long.
3. The 6-Year Rule — Keep Your Exemption While Renting
Under the absence rule, if you move out and rent your home, you can still treat it as your main residence for up to six years while you’re away.
As long as you don’t nominate another property as your main residence during that time, you can avoid capital gains tax when you eventually sell.
The ATO confirms this in its main residence exemption guidance — even if you earn rental income during that period, your property remains CGT-free for up to six years.
For example, if you move interstate for work and rent out your Perth home for five years, you can still sell it tax-free, provided you meet the residency conditions.
4. Land, Subdivisions, and Multiple Titles
The main residence exemption generally applies to land up to two hectares surrounding your home, according to the ATO’s capital gains tax guide.
If you own adjoining lots, subdivide, or build a new home, the exemption can still apply, but only to the portion that qualifies as your principal residence. Selling subdivided lots or secondary dwellings may trigger separate CGT events, so getting professional advice before acting is crucial.
Common Mistakes That Can Trigger CGT on Your Home
Even with the exemption available, many homeowners unintentionally expose themselves to capital gains tax. Common mistakes include:
- Renting before moving in: The exemption only applies from when you occupy the property as your main home.
- Renovating but not residing: Ownership alone isn’t enough — you must actually live there.
- Declaring two main residences: You can only claim one main residence at a time (with a six-month overlap allowed when moving).
- Poor recordkeeping: Without supporting documents, the ATO can deny your exemption claim.
- Running a business from home: Using part of your property to generate income (like Airbnb or home salons) may reduce your exemption.
Each of these issues is discussed in detail in the ATO’s “Real Estate and Main Residence” resources.
Practical Strategies to Minimise or Avoid Capital Gains Tax
1. Move in quickly after purchase
To start the exemption clock, move into the property as soon as possible after settlement and establish it as your main residence.
2. Use the six-year rule strategically
If you rent out your home temporarily, ensure you track the timeline accurately and avoid claiming another property as your main residence during that time.
3. Maintain detailed records
Keep a log of dates you moved in or out, when the property was rented, and any business use. This ensures accuracy in the event of an ATO review.
4. Seek advice before selling
Consult with experts like Insight Advisory Group to determine your eligibility for exemptions and explore timing strategies to minimise tax liability.
5. Consider timing your sale
If some CGT applies, selling during a lower income year can reduce your overall tax burden since capital gains are added to assessable income.
How Insight Advisory Group Helps You Avoid Capital Gains Tax
At Insight Advisory Group, we help Perth homeowners and investors optimise property decisions and ensure they’re making the most of available CGT exemptions.
Our advisors can:
- Assess whether your property qualifies for the main residence exemption
- Apply the six-year rule correctly
- Calculate partial exemptions for mixed-use properties
- Advise on property structures and ownership for future tax planning
- Manage ATO compliance and reporting to protect your position
Explore our Tax Planning and Compliance Services or Contact Us to discuss your property sale and CGT position with an experienced advisor.
FAQs — How to Avoid Capital Gains Tax on Your Home
Q: How long must I live in my home to claim the exemption?
There’s no fixed time period, but you must genuinely establish the property as your home — typically living there for at least 3–6 months with proof such as mail, bills, or enrolment records.
Q: Can I still avoid capital gains tax if I rent out my home?
Yes. Under the six-year absence rule, you can treat your property as your main residence while it’s rented out — up to six years, according to the ATO.
Q: Do couples get two main residence exemptions?
No. Spouses and dependants generally share one main residence exemption at a time, even if they own separate properties.
Q: What if I inherit a property?
Inherited homes may still be exempt, depending on the deceased’s main residence status and the timing of the sale.
Q: Can I apply the exemption to land I build on later?
Yes, as long as you move in as soon as construction finishes. There are specific construction period rules under the ATO’s CGT guidance.
Key Takeaways
- The main residence exemption is the most effective way to avoid capital gains tax when selling your home.
- Proper documentation and strategic use of the six-year rule can help you keep your profits tax-free.
- Mistakes such as renting before occupancy or claiming multiple main residences can void your exemption.
- Professional advice from Insight Advisory Group ensures you remain compliant while maximising your tax savings.
