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Check if you qualify for the main residence exemption and whether your home is considered a dwelling.
On this page
- Eligibility conditions
- What is a main residence?
- What is a dwelling?
- Foreign residents
Eligibility conditions
Your main residence (your home) is exempt from CGT if you are an Australian resident and the dwelling:
- has been the home of you, your partner and other dependants for the whole period you have owned it
- has not been used to produce income – that is, you have not run a business from it, rented it out or 'flipped' it (bought it to renovate and sell at a profit)
- is on land of 2 hectares or less.
If you meet these conditions, you do not pay tax on any capital gain when you sell your home and you ignore any capital loss.
If you do not meet all these conditions, you may still be entitled to a partial exemption. You can work out the proportion that is exempt using the CGT property exemption tool.
CGT property exemption tool
What is a main residence?
Generally, a dwelling is considered to be your main residence if:
- you and your family live in it
- your personal belongings are in it
- it is the address your mail is delivered to
- it is your address on the electoral roll
- services such as gas and power are connected.
The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant.
To be your main residence, your property must have a dwelling on it and you must have lived in it. You are not entitled to the exemption for a vacant block.
What is a dwelling?
A dwelling is anything used wholly or mainly for residential accommodation, such as:
- a house or cottage
- an apartment or flat
- a strata title unit
- a unit in a retirement village
- a caravan, houseboat or other mobile home.
A flat or home unit often includes areas that are physically separate, such as a laundry, storeroom or garage. They are exempt from CGT on the same basis as the flat or unit. However, if you dispose of one of these structures separately from the flat or home unit (for example, you sell the garage), they are not exempt from CGT unless they were compulsorily acquired.
Foreign residents
If you were not a resident of Australia for tax purposes while you were living in the property, you are unlikely to satisfy the requirements for the main residence exemption.
If you are a foreign resident when a CGT event happens to your residential property in Australia (for example, you sell it), you may not be entitled to claim the main residence exemption.
Check if you qualify for the main residence exemption and whether your home is considered a dwelling.
Last modified: 01 Jul 2022QC 69710
A tax break for the mortgage interest you paid isn’t the only benefit that comes with owning a primary residence. You may also qualify to exclude capital gains when you sell your home.
Capital gains tax is what you pay when you sell an asset that has increased in value. When you decide to sell your primary residence and it has increased in value, you’ll be eligible to exclude some of the capital gains from the proceeds of your sale. Currently, the IRS allows taxpayers to exclude up to $500,000 in capital gains if married filing jointly or $250,000 if single.
Let’s say you purchase a home for $200,000. It’s your primary residence and the only home you own. A few years later, you decide to move and sell it for more money. After paying for costs related to the sale, your profit is $50,000. If you meet the criteria for the exclusions, you won’t have to pay capital gains taxes on that profit. The capital gains tax rate is 0%, 15% or 20% depending on your income.
To qualify for the exclusion,
- You must have owned your home for at least 24 months out of the previous 5 years.
- It must have been your primary residence for at least 24 months out of the previous 5 years.
- You can’t have claimed another capital gains exclusion in the past 2 years.
The 1031 Exchange
There is an exception to the capital gains exclusion, and it relates to property that was previously purchased through a 1031 exchange. If you own an investment property and you want to sell it and purchase another investment property, you can defer paying capital gains tax on the sale if you do a like-kind exchange (a 1031 exchange).
During a 1031 exchange, you’re selling one investment property and within a certain period purchasing another investment property that is like-kind.
But what if you eventually move into that investment property and convert it to your primary residence? And then want to sell it? The property that you acquired through the 1031 exchange isn’t eligible for the capital gains exclusion if you sell it within 5 years of purchasing it.