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Real estate and main residence

Explains your CGT obligations for real estate. The CGT exemption for a main residence is also explained.

Last updated 30 May 2024

CGT and real estate

Real estate includes vacant blocks of land, business premises, rental properties, holiday houses and hobby farms. Apart from the main residence rules, capital gains and capital losses on real estate are worked out under the rules set out earlier in this guide.

Land is a CGT asset. In some cases, improvements made to land are treated as separate CGT assets, see Separate assets. A depreciating asset that is found in a building (for example, carpet or a hot-water system) is also taken to be a separate CGT asset from the building. When a CGT event happens to your property, you must work out a capital gain or capital loss for each CGT asset it comprises (or balancing adjustment in the case of depreciating assets sold with the property).

The most common CGT event that happens to real estate is its sale or disposal, CGT event A1. The time of the event is:

  • when you enter into the contract for the disposal
  • if there is no contract, when the change of ownership occurs
  • if the asset is compulsorily acquired by an entity, the earliest of when      
    • you received compensation from the entity
    • the entity became the asset’s owner
    • the entity entered it under a power of compulsory acquisition
    • the entity took possession under that power.

If land is disposed of under a contract, it is taken to have been disposed of when the contract is entered into, not the settlement date. The fact that a contract is subject to a condition, such as finance approval, will generally not affect this date.

You are not required to include any capital gain or capital loss in your tax return for the relevant income year until settlement occurs. When settlement occurs, you must include any capital gain or capital loss in your tax return for the income year in which the contract was made. If an assessment has already been made for that income year, you may need to have that assessment amended. Where an assessment is amended to include a net capital gain and a liability for shortfall interest charge (SIC) arises, remission of that interest charge will be considered on a case-by-case basis. Generally, it would be expected that the SIC would be remitted in full where requests for amendment are lodged within a reasonable time after the date of settlement, which, in most cases, is considered to be one month. If you consider that the SIC should be remitted, you should provide reasons why when you request the amendment to your assessment.

Rules to keep in mind

There are a few rules to keep in mind when you calculate your capital gain or capital loss from real estate, in particular rules relating to:

  • the costs of owning the real estate
  • cost base adjustments for capital works deductions.

Costs of owning

You don't include rates, insurance, land tax, maintenance and interest on money you borrowed to buy the property or finance improvements to it in the reduced cost base. You only include them in the cost base if you:

  • acquired the property under a contract entered into after 20 August 1991 (or if you didn’t acquire it under a contract, you became the owner after that date)
  • couldn't claim a deduction for the costs because you did not use the property to produce assessable income, for example, it was vacant land, your main residence, or a holiday home during the period.

Cost base adjustments for capital works deductions

In working out a capital gain for property that you used to produce assessable income (such as a rental property or business premises), you may need to exclude from the cost base and reduced cost base capital works deductions you have claimed in any income year (or omitted to claim, but can still claim, because the period for amending the relevant income tax assessment has not expired).

For information on when property (for example, a building, structure or other capital improvement to land) is treated for CGT purposes as a CGT asset separate from the land, see:

You must exclude from the cost base of a CGT asset (including a building, structure or other capital improvement to land that is treated as a separate asset for CGT purposes) the amount of capital works deductions you claimed (or omitted to but can still claim because the period for amending the relevant income tax assessment has not expired) for the asset if you acquired the asset:

  • after 7:30 pm AEST on 13 May 1997, or
  • before that time and the expenditure that gave rise to the capital works deductions was incurred after 30 June 1999.

However, if you omitted to claim capital works deductions because you did not have sufficient information to determine the amount and nature of the construction expenditure, there is no need to exclude the amount of such deductions from the cost base of the CGT asset.

Reduced cost base

You exclude the amount of the capital works deductions you claimed (or omitted to claim but can still claim because the period for amending the relevant income tax assessment has not expired) from the reduced cost base. However, if you omitted to claim capital works deductions because you did not have sufficient information to determine the amount and nature of the construction expenditure, there is no need to exclude the amount of such deductions from the reduced cost base of the CGT asset.

Example 53: capital works deduction

Zoran acquired a rental property on 1 July 1999 for $200,000. Before disposing of the property on 30 June 2024, he had claimed $10,000 in capital works deductions.

At the time of disposal, the cost base of the property was $210,250. Zoran must reduce the cost base of the property by $10,000 to $200,250.

End of example

Rollover

There is generally no rollover or exemption for a capital gain you make when you sell an asset and put the proceeds into a superannuation fund. There is also no general exemption or rollover when you use the proceeds to purchase an identical or similar asset, or you transfer an asset into a superannuation fund. For example, a rollover is not available if you:

  • sell a rental property and put the proceeds into a superannuation fund, or
  • use the proceeds to purchase another rental property.

A rollover may be available in special circumstances, in particular for:

  • destruction
  • compulsory acquisition of property
  • marriage or relationship breakdown.

However, an asset or the capital proceeds from the sale of an asset may be transferred into a superannuation fund in order to satisfy certain conditions under the small business retirement exemption.

For more information, see Small business CGT concessions.

Keeping records

Keep appropriate records, see Records relating to real estate.

Sale of a rental property

Example 54 shows how you would calculate your capital gain on the sale of your rental property.

The Capital gain or capital loss worksheet – Brett (PDF 95KB)This link will download a file shows how you would complete the Capital gain or capital loss worksheet for this example.

Example 54: sale of a rental property

Brett purchased a residential rental property on 1 July 1997. The price he paid was $150,000, of which $6,000 was attributable to depreciating assets. He also paid $20,000 in total for pest and building inspections, stamp duty and solicitor’s fees.

In the next few years, Brett incurred the following expenses on the property:

  • interest on money borrowed $10,000
  • add rates and land tax of $8,000
  • add deductible (non-capital) repairs of $15,000
  • the total expenses are $33,000.

Brett can't include the expenses of $33,000 in the cost base, as he was able to claim a deduction for them.

When Brett decided to sell the property, a real estate agent advised him that if he spent around $30,000 on major structural improvements, the property would be valued at around $500,000. The major structural improvements were completed on 1 October 2023 at a cost of $30,000.

On 1 February 2024, he sold the property for $500,000 (of which $4,000 was attributable to depreciating assets).

Brett could not claim any capital works deductions for the original construction costs, as construction of the property began before 18 July 1985. However, he could claim a capital works deduction of $255 ($30,000 × 2.5% × 124 ÷ 365) for the major structural improvements.

For information on capital works that qualify for a deduction, see Rental properties 2024. For information on how capital works deductions affect the CGT cost base, see Cost base adjustments for capital works deductions.

This is Brett’s only capital gain for the year, and he has no capital losses to offset from this income year or previous years.

Brett works out his cost base as follows.

  1. Purchase price of property (not including depreciating assets) is $144,000.
  2. Add:
    • pest and building inspections, stamp duty and solicitor's fees on purchase of the property of $20,000
    • capital expenditure (major structural improvements) of $30,000 and subtract capital works deduction of $255 which equals $29,745
    • real estate agent’s fees and solicitor’s fees on sale of the property of $12,500
  3. The cost base unindexed is $206,245.

Brett deducts his cost base from his capital proceeds (sale price) as follows:

  1. Proceeds from selling the house (not including depreciating assets) are $496,000.
  2. Subtract cost base unindexed
    $496,000 − $206,245 = $289,755

He decides the discount method will give him the best result, so he uses this method to calculate his capital gain:

$289,755 ×  50% = $144,877

Brett writes $144,877 at question 18 – label A in his supplementary tax return.

Brett writes $289,755 at question 18 – label H Total current year capital gains in his supplementary tax return. Brett must also make balancing adjustment calculations for his depreciating assets. Because he used the property 100% for taxable purposes, he will not make a capital gain or capital loss from the depreciating assets.

End of example

Investing in affordable housing

An additional CGT discount of up to 10% is allowed to Australian resident individuals who invest in affordable housing.

A property qualifies as 'affordable' housing if rent is charged at below market rate, and it is made available for eligible tenants on low to moderate incomes. The property must be managed by an eligible community housing provider (CHP).

Only dwellings that are Australian residential premises can be used to provide affordable housing. Commercial residential premises don't qualify as affordable housing. Caravans, mobile homes and houseboats are not considered residential premises.

The additional affordable housing capital gain discount applies to CGT events occurring on or after 30 December 2020.

Eligibility for the affordable housing CGT discount

The following conditions must be met to qualify for up to 10% additional capital gain discount for investing in affordable housing:

  • residential premises – the dwelling is Taxable Australian Real Property (TARP) and is residential premises that is not commercial residential premises and is tenanted or available to be tenanted
  • property management – the tenancy of the dwelling or its occupancy is exclusively managed by an eligible CHP
  • affordable housing certification – the eligible CHP has given each entity that holds an ownership interest in the dwelling certification that the dwelling was used to provide affordable housing
  • NRAS – no entity that has an ownership interest in the dwelling is entitled to receive a National Rental Affordability Scheme (NRAS) incentive for the NRAS year, and
  • MIT membership – if the ownership interest in the dwelling is owned by a Managed Investment Trust (MIT), the tenant does not have an interest in the MIT that passes the non-portfolio test.

To qualify for the discount, an investor must have provided affordable housing on or after 1 January 2018 for a period, or intermittent periods, totalling at least 1,095 days. The investor must have invested either directly, or through a trust including where there is an interposed entity between the investor and the trust. The trust that provides the affordable housing and any interposed entities may be a trust, a managed investment trust or partnership, but can't be a public unit trust or superannuation fund.

How to calculate the additional CGT discount

The additional affordable housing CGT discount percentage, which will be 10% or less, is calculated as follows:

(CGT discount percent ÷ 5) × (Affordable housing days ÷ Total ownership days)

Where:

  • CGT discount percentage is the discount of up to 50% on capital gains.
  • Affordable housing days are the number of days the dwelling was used to provide affordable housing (on or after 1 January 2018) during its ownership period (and shown on the affordable housing certificate), subtract the number of days when the individual receiving the affordable housing capital gains discount was a foreign or temporary resident.
  • Total ownership days are the number of days the dwelling was held from the time it was acquired until a CGT event occurred to it, excluding any period of foreign or temporary residency after 8 May 2012.

Affordable housing certificate

If you invested directly in affordable housing, you should have received an annual affordable housing certificate from your CHP showing the number of days your investment was used to provide affordable housing. If you invested in affordable housing through a trust or managed investment trust, you may need to contact the trustee to get the number of affordable housing days in order to work out your additional affordable housing CGT discount percentage.

Example 55: working out the aggregate period and affordable housing discount

On 1 February 2020, Lisa purchased a dwelling that is residential premises.

During her ownership assume Lisa uses the dwelling as follows:

  • left it vacant and undertook repairs from when she acquired it on 1 February 2020 (the acquisition date for CGT purposes) until 1 March 2020 (30 days)
  • rented it out through a CHP as affordable housing from 2 March 2020 until 4 February 2024 (1,435 days)
  • rented it out through a real estate property manager at market rates (that is, not providing affordable housing) from 5 February 2024 until 31 May 2024 (117 days), and
  • vacated the property and prepared it for sale on and after 1 June 2024 (23 days).

On 23 June 2024 (the disposal date for CGT purposes), Lisa signed a contract to sell the dwelling, with settlement occurring on 23 July 2024. Lisa made a capital gain of $100,000.

Lisa held the dwelling for a total of 1,605 days. She used the dwelling to provide affordable housing for 1,435 of the 1,605 days. As Lisa used the dwelling to provide affordable housing for more than 1,095 days, she would be eligible for the additional affordable housing capital gains discount (assuming the dwelling meets the other requirements).

Lisa's affordable housing capital gain discount percentage is equal to:

(capital gain discount percentage ÷ 5) × (Affordable housing days ÷ Total ownership days)

She works this out as:

(50% ÷ 5) × (1,435 ÷ 1,605) = 8.94% (this is the discount percent available for the provision of affordable housing)

The discount percentage is equal to the sum of the capital gain discount percentage and the affordable housing discount capital gain percentage. That is, 58.94% (50% plus 8.94%).

Lisa reduces her capital gain by the discount percentage. Lisa has capital gain of $100,000. She works out her capital gain after capital gains discount as:

Capital gain × (1 − discount %)

$100,000 × (1 − 58.94%) = $41,060

Lisa includes only $41,060 of the $100,000 capital gain in her assessable income from her sale of this property, as a result of investment in affordable housing and meeting all its conditions.

Note: Capital gains can also be reduced by capital losses and other concessions or exemptions, however, for the purpose of this example, these have not been factored in.

End of example

For more information, see CGT discount for affordable housing.

Other CGT events affecting real estate

CGT event B1: Happens to real estate if you enter into an agreement where the new owner is entitled to possession of the land or the receipt of rents and profits before becoming entitled to a transfer or conveyance of the land.

Where this happens under a contract, it is known as a ‘terms contract’ and the new owner usually completes the purchase by paying the balance of the purchase price and receiving the instrument of transfer and title deeds.

It may also happen where an agreement is made with a relative or other party to use and enjoy the property for a specified period, after which title to the property passes to them. It will not happen where, under an arrangement, title to a property may pass at an unspecified time in the future.

CGT event B1 happens when use and enjoyment of the land is first obtained by the new owner. Use and enjoyment of the land from a practical point of view takes place at the time the new owner gets possession of the land or the date the new owner becomes entitled to the receipt of rents and profits.

If the agreement falls through before completion and title to the land does not pass to the new owner, you may be entitled to amend your assessment for the year in which CGT event B1 happened.

CGT event C1: Happens if an asset is lost or destroyed. This event may happen if, for example, a building on your land is destroyed by fire. Your capital proceeds for CGT event C1 happening include any insurance proceeds you may receive for the loss or destruction. The market value substitution rule for capital proceeds that generally applies if you receive no capital proceeds does not apply if CGT event C1 happens.

For more information, see Loss, destruction or compulsory acquisition of an asset.

CGT event D1: Happens if you give someone a right to reside in a dwelling. The capital proceeds include money (but not rent) and the value of any property you receive.

The market value substitution rule for capital proceeds (see Definitions) applies if:

  • the amount of capital proceeds you receive is more or less than the market value of the right, and
  • you and the person you granted the right to were not dealing with each other at arm’s length in connection with the event.

CGT event D2: Happens if you grant an option to a person or an entity, or renew or extend an option that you had granted.

The amount of your capital gain or capital loss from CGT event D2 is the difference between what you receive for granting the right and any expenditure you incurred on it. The CGT discount does not apply to CGT event D2.

Example 56: granting of an option

You were approached by Colleen, who was interested in buying your land. On 30 June 2023, you granted her an option to purchase your land within 12 months for $200,000. Colleen pays you $10,000 for the grant of the option. You incur legal fees of $500. You made a capital gain in the 2022–23 income year of $9,500.

End of example

Exercise of an option

If the option you granted is later exercised, you ignore any capital gain or capital loss you made from the grant, renewal or extension. You may have to amend your income tax assessment for an earlier income year.

Similarly, any capital gain or capital loss that the grantee would otherwise make from the exercise of the option is disregarded.

The effect of the exercise of an option depends on whether the option was a ‘call option’ or a ‘put option’. A call option is one that binds the grantor to dispose of an asset. A put option binds the grantor to acquire an asset.

Example 57: granting of an option (continued)

On 1 February 2024, Colleen exercised the option you granted her. You disregard the capital gain that you made in 2022–23 income year and you request an amendment of your income tax assessment to exclude that amount. The $10,000 you received for the grant of the option is considered to be part of the capital proceeds for the sale of your property in the 2023–24 income year. Your capital gain or capital loss from the property is the difference between its cost base or reduced cost base and $210,000.

End of example

CGT event D4: Happens if you enter into a conservation covenant after 15 June 2000 over land that you own and if you receive capital proceeds for entering into the covenant.

From 1 July 2002, CGT event D4 also happens if you receive no capital proceeds for entering into the covenant and you can claim a tax deduction for entering into the covenant. One of the conditions for a tax deduction is that the covenant is entered into with a deductible gift recipient or an Australian Government agency (that is, the Commonwealth, a state, a territory or one of their authorities).

A ‘conservation covenant’ is a covenant that:

  • restricts or prohibits certain activities on the land that could degrade the environmental value of the land
  • is permanent and binding on current and future land owners (by way of registration on the title to the land where possible)
  • is approved by the Environment Minister (including those entered into under a program approved by that Minister).

If CGT event D4 happens, you calculate your capital gain by comparing your capital proceeds from entering into the covenant with the portion of the cost base of the land that is attributable to the covenant.

Similarly, you calculate your capital loss by comparing your capital proceeds from entering into the covenant with the portion of the reduced cost base of the land that is attributable to the covenant.

The market value substitution rule for capital proceeds that generally applies if you receive no consideration for a CGT event does not apply if CGT event D4 happens. Instead, the capital proceeds are equal to the amount you can claim as a tax deduction for entering into the covenant.

Calculate the relevant portion of the cost base and reduced cost base attributable to the covenant using this formula:

A × (B ÷ C)

Where:

  • A is cost base (reduced cost base)
  • B is capital proceeds from entering into the covenant over land
  • C is those capital proceeds plus the market value of the land just after you enter into the covenant

As the conservation covenant will affect the value of the entire land you must use the cost base of the entire land in calculating the cost base apportioned to the covenant. This is the case even if the covenant specifically states within its terms that the restrictions as to use only apply to part of the land.

CGT event D4 will not happen if you receive no capital proceeds and the conditions for a tax deduction for entering into the covenant are not satisfied. In this case, CGT event D1 will apply.

CGT events involving leases

There are a number of CGT events that may apply to the lease of land.

CGT event F1: Happens if you grant a lease to a person or entity or if you extend or renew a lease that you had previously granted. In the case of a long-term lease (one that may be expected to continue for at least 50 years), you can choose to treat the grant (renewal or extension) of the lease as a part disposal of the underlying leased property.

Example 58: receiving an amount for granting a lease

Elisabeth operates a profitable footwear retailing business and wishes to lease some shop space in a prestigious location in the Sydney CBD. However, the demand for shop space in the locality is great, and competition between prospective tenants is fierce. In order to ensure that she secures the lease of the particular shop space that she wants, Elisabeth pays John (the owner of the shop space) a premium of $6,000 in consideration for the grant of that particular lease.

She enters into the lease on 6 September 2008, and John incurs stamp duty of $300 and solicitor’s fees of $500 on the grant of the lease.

John makes a capital gain of $5,200 from CGT event F1:

  • capital proceeds of $6,000
  • subtract incidental costs of $800 (that is, stamp duty of $300 and solicitors' fees of $500)
  • capital gain is $5,200.

For Elisabeth, this transaction results in CGT event C2 when the lease expires.

End of example

The amount of your capital gain or capital loss from CGT event F1 is the difference between any premium you got for granting the lease and the expenditure you incurred in granting it. The CGT discount does not apply to CGT event F1. The market value substitution rule for capital proceeds that generally applies if you receive no consideration for a CGT event does not apply if CGT event F1 happens.

CGT event F2: You can choose for CGT event F2 to apply (rather than CGT event F1) when you grant, renew or extend a long-term lease (at least 50 years). It can apply if you are the owner of the underlying land or if you grant a sub-lease.

Your capital proceeds if CGT event F2 happens are the greatest of:

  • the market value of the freehold or head lease (at the time you grant, renew or extend the lease)
  • the market value if you had not granted, renewed or extended the lease
  • any premium from the grant, renewal or extension.

There are special cost base rules that apply if you choose for CGT event F2 to apply.

For any later CGT event that happens to the land or the lessor’s lease of it, its cost base and reduced cost base (including the cost base and reduced cost base of any building, part of a building, structure or improvement that is treated as a separate CGT asset) excludes:

  • any expenditure incurred before CGT event F2 happens
  • the cost of any depreciating asset for which the lessor has deducted or can deduct an amount for its decline in value.

The 4th element of the property’s cost base and reduced cost base includes any payment by the lessor to the lessee to vary or waive a term of the lease or for the forfeiture or surrender of the lease, reduced by the amount of any input tax credit to which the lessor is entitled for the variation or waiver.

CGT event F3: Happens if you make a payment to a lessee to vary a lease. You can only make a capital loss from this CGT event. Your capital loss is equal to the expenditure you incurred to change the lease.

CGT event F4: Happens if you (as lessee) receive a payment from the lessor for agreeing to vary or waive a term of the lease.

You can't make a capital loss from this CGT event. You will only make a capital gain from CGT event F4 if the amount of the payment you received exceeds the cost base of your lease at the time when the term is varied. In other cases, you will be required to adjust the cost base of your lease.

The market value substitution rule for capital proceeds that applies if you don't receive market value for a CGT event does not apply if CGT event F4 happens.

Example 59: payment to lessee for change in lease

Sam is the lessor of a commercial property. His tenant, Peter, currently holds a 3-year lease over the property, which has another 26 months to run. A business associate of Sam’s wishes to lease the property from Sam for a 10-year period, beginning in 6 months’ time, for twice the rent that Peter is currently paying. Sam approaches Peter with an offer of $5,000 cash for Peter to agree to vary the terms of the lease so that the lease will expire in 6 months’ time. Peter agrees to vary the terms on 10 August 2023.

Sam will make a capital loss from CGT event F3 happening. His capital loss is equal to the expenditure of $5,000 he incurred.

For Peter, this transaction results in CGT event F4 happening. The cost base of Peter’s lease at the time of the variation was $500. He makes a capital gain of $4,500 ($5,000 − $500).

End of example

You disregard any capital loss you make from the expiry, forfeiture, surrender or assignment of a lease (except one granted for 99 years or more) if you didn't use it solely or mainly for the purpose of producing assessable income, for example, if you used it for private purposes.

CGT event F5: Happens if you, as lessor, receive a payment for changing a lease.

The amount of your capital gain or capital loss from CGT event F5 is the difference between what you receive for changing the lease and any expenditure you incurred on it. The CGT discount does not apply to CGT event F5.

Subdivision of land

If you subdivide a block of land, each block that results is registered with a separate title. For CGT purposes, the original land parcel is divided into 2 or more separate assets. Subdividing land does not result in a CGT event if you retain ownership of the subdivided blocks. Therefore, you don't make a capital gain or a capital loss at the time of the subdivision.

However, you may make a capital gain or capital loss when you sell the subdivided blocks. The date you acquired the subdivided blocks is the date you acquired the original parcel of land and the cost base of the original land is divided between the subdivided blocks on a reasonable basis.

For more information, see Taxation Determination TD 97/3 Income tax: capital gains: if a parcel of land acquired after 19 September 1985 is subdivided into lots ('blocks'), do Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 treat a disposal of a block of the subdivided land as the disposal of part of an asset (the original land parcel) or the disposal of an asset in its own right (the subdivided block)?

When the profit is ordinary income

You may have made a profit from the subdivision and sale of land which occurred in the ordinary course of your business or which involved a commercial transaction or business operation entered into with the purpose of making a profit. In this case, the profit is ordinary income (see Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income). You reduce any capital gain from the land by the amount otherwise included in your assessable income.

Example 60: land purchased before 20 September 1985, land subdivided after that date and house built on subdivided land

In 1983, Mike bought a block of land that was less than 2 hectares. He subdivided the land into 2 blocks in May 2023 and began building a house on the rear block, which he finished in August 2023 and did not use as his main residence. He sold the rear block (including the house) in October 2023 for $650,000. Mike got a valuation from a qualified valuer who valued the rear block at $550,000 and the house at $100,000. The construction cost of the house was $85,000.

Mike acquired the rear block before 20 September 1985, so it is not subject to CGT. As the new house was constructed after 20 September 1985 on land purchased before that date, the house is taken to be a separate asset from the land. Mike is taken to have acquired the house in May 2023, when he began building it. Mike made a capital gain of $15,000 ($100,000 − $85,000) when he sold the house because he did not use it as his main residence.

As Mike had owned the house for less than 12 months, he used the 'other' method to calculate his capital gain.

End of example

 

Example 61: dwelling purchased on or after 20 September 1985 and land subdivided after that date

Kym bought a house on a 0.2 hectare block of land in June 2023 for $350,000. The house was valued at $120,000 and the land at $230,000. Kym lived in the house as her main residence. She incurred $12,000 in stamp duty and legal fees purchasing the property.

Kym found the block was too big for her to maintain. In January 2024, she subdivided the land into 2 blocks of equal size – the front one with the house on it. She incurred $10,000 in survey, legal and subdivision application fees, and $1,000 to connect water and drainage to the rear block. In March 2024, she sold the rear block for $130,000.

As Kym sold the rear block of land separately, the main residence exemption does not apply to that land. She contacted several local real estate agents who advised her that the value of the front block was $15,000 higher than the rear block. Kym apportioned the $230,000 original cost base into $107,500 for the rear block (46.7%) and $122,500 for the front block (53.3%). Kym incurred $3,000 legal fees on the sale.

The cost base of the rear block is calculated as follows:

  • cost of the land $107,500
  • add $5,604
    46.7% of the $12,000 stamp duty and legal fees on the purchase
  • add $4,670
    46.7% of the $10,000 cost of survey, legal and application fees
  • add $1,000
    cost of connecting water and drainage
  • add $3,000
    legal fees on sale
  • The total is $121,774.

The capital gain on the sale of the rear block is $8,226. She calculates this by subtracting the cost base ($121,774) from the sale price ($130,000). As Kym had owned the land for less than 12 months, she uses the 'other' method to calculate her capital gain.

Kym will get the full exemption for her house and the front block if she uses them as her main residence for the full period she owns them.

End of example

Amalgamation of title

The amalgamation of the titles to various blocks of land that you own does not result in a CGT event happening.

Land you acquired before 20 September 1985 that is amalgamated with land acquired on or after that date retains its pre-CGT status.

Example 62: amalgamation of title

On 1 April 1984, Robert bought a block of land. On 1 June 2008, he bought another block adjacent to the first one. Robert amalgamated the titles to the 2 blocks into one title.

Robert is taken to have 2 separate assets. The first block continues to be treated as a pre-CGT asset.

End of example

Examples of CGT calculations affecting real estate

There are a number of other examples in this guide that explain how to calculate your capital gain or capital loss on the sale of real estate:

  • calculation of capital gain (including worksheet), where a person can choose the indexation or discount method to calculate their capital gain, see Example 13
  • calculation of capital gain on property owned for 12 months or less, see Example 9
  • recoupment of expenditure affecting CGT cost base calculation, see Example 6
  • deductions affecting CGT cost base calculations, see Example 53 and Example 54.

Main residence

Generally, if you are an individual (not a company or trust) you can ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence (also referred to as ‘your home’). However, special rules apply if the interest in the dwelling is held by the trustee of a Special Disability Trust. In such cases, the trustee of the Special Disability Trust will be eligible for any main residence exemption to the extent the individual principal beneficiary of the Special Disability Trust would have been if that individual principal beneficiary owned the interest in the dwelling.

To get the full exemption from CGT:

  • the dwelling must have been your home for the whole period you owned it
  • you must not have used the dwelling to produce assessable income
  • any land on which the dwelling is situated must be 2 hectares or less
  • you must not be an excluded foreign resident at the time the CGT event occurs.

If you inherited a dwelling or a share of a dwelling and it was not the deceased’s main residence, you are unlikely to get a full exemption. See Flowchart 3.6 in Appendix 3, and Inherited main residence.

You may get only a partial exemption if:

  • the dwelling was your main residence during only part of the period you owned it
  • you used the dwelling to produce assessable income, or
  • the land on which the dwelling is situated is more than 2 hectares.

Short absences from your home (for example, annual holidays) don't affect your exemption.

If you are a foreign resident when a CGT event happens to your residential property in Australia you will no longer be entitled to claim the main residence exemption unless certain life events occur within a continuous period of 6 years of the individual becoming a foreign resident for tax purposes.

Where the deceased was a foreign resident, the changes may also apply to:

  • legal personal representatives, trustees and beneficiaries of deceased estates
  • surviving joint tenants
  • special disability trusts.

For more information, see:

If a dwelling was not your main residence for the whole time you owned it, some special rules may entitle you to a full exemption or to extend the partial exemption you would otherwise get. These rules can apply to land or a dwelling if you:

Special rules

There are some special CGT rules that are not covered in this section that may affect you if your home was:

If you own more than one dwelling during a particular period, only one of them can be your main residence at any one time.

The exception to this rule is if you move from one main residence to another. In this case you can treat 2 dwellings as your main residence for a limited time, see Moving from one main residence to another.

Special rules apply if you have a different main residence from your spouse or dependent children, see Having a different home from your spouse or dependent child.

If you are a foreign resident when a CGT event happens to your residential property in Australia, you will no longer be entitled to claim the main residence exemption unless certain life events occur within a continuous period of 6 years of the individual becoming a foreign resident for tax purposes.

Downsizer contributions and capital gains tax

A downsizer contribution allows people who are 60 years old and older (from 1 July 2022) or 55 years old and older (from 1 January 2023) at the time of making the contribution, to sell their home and make a contribution to superannuation based on the proceeds of the sale. This also applies to people who may otherwise be prevented from making contributions into superannuation due to:

  • age
  • work status
  • contribution cap restrictions.

There are various criteria to be eligible to make a downsizer contribution.

To make a downsizer contribution, the capital gain or loss from the sale of the home must be disregarded, in whole or part, because the property has been treated as your main residence (for the purposes of the main residence exemption for CGT). A partial main residence CGT exemption (for the purposes of the downsizer contribution eligibility) may apply in a variety of situations, including where the home:

  • was not your main residence for the entire period of ownership
  • was used to produce assessable income (in whole or part) for a period of time during the ownership
  • is on land greater than 2 hectares.

You may not have a capital gain or loss to disregard because, for example:

  • your home was a pre-CGT asset (that is, if it was acquired before 20 September 1985)
  • your spouse owned the home that was sold.

If your home was a pre-CGT asset you can still make a downsizer contribution if would be entitled to such an exemption if your home was a post-CGT asset rather than a pre-CGT asset.

If your home that was sold was only owned by one spouse, the spouse that did not have an ownership interest may also make a downsizer contribution, or have one made on their behalf, provided they meet all of the other requirements

For more information, see Downsizing contributions into superannuation.

What is a dwelling?

A dwelling is anything that is used wholly or mainly for residential accommodation. Certain mobile homes can also be a dwelling. Examples of a dwelling are:

  • a home or cottage
  • an apartment or flat
  • a strata title unit
  • a unit in a retirement village
  • a caravan, houseboat or other mobile home.

Any land the dwelling is on is included as part of the dwelling, but it only qualifies for the main residence exemption if the land and the dwelling are sold together. Also, the exemption applies to a maximum of 2 hectares of land (including the land on which the dwelling is built). Any excess is subject to CGT.

A building or a unit in a building, which is a dwelling, ceases to be a dwelling once you commence converting it into commercial premises.

For more information, see Land adjacent to the dwelling.

What is an ownership interest?

In the case of a flat or home unit, you have an ownership interest if you have a:

  • legal or equitable interest in a strata title in the flat or home unit
  • licence or right to occupy the flat or home unit
  • share in a company that owns a legal or equitable interest in the land on which the flat or home unit is constructed and that share gives you a right to occupy the flat or home unit.

In the case of a dwelling that is not a flat or home unit, you have an ownership interest if you have either a:

  • legal or equitable interest in the land on which it is constructed
  • licence or right to occupy it.

In the case of land, you have an ownership interest if you have either a:

  • legal or equitable interest in it
  • right to occupy it.

An equitable interest may include life tenancy of a dwelling that you acquire, for example, under a deceased’s will.

When do you acquire an ownership interest?

For the purposes of the main residence exemption, you have an ownership interest in a dwelling or land you acquire under a contract from the time you get legal ownership (unless you have a right to occupy it at an earlier time).

You have legal ownership of a dwelling or land from the date of settlement of the contract of purchase (or if you have a right to occupy it at an earlier time, that time) until the date of settlement of the contract of sale. This period is called your ownership period. If the dwelling is on 2 hectares of land or less, is your main residence for the whole of the ownership period and you don't use it to produce assessable income, the home is fully exempt.

Example 63: full exemption

Frank signed a contract on 14 August 2000 to purchase 0.1 hectare of land from a developer and to have a house constructed on the land. Under the contract, settlement did not occur until construction was completed on 26 October 2001.

Frank moved into the house immediately upon settlement of the contract he had with the developer, that is, on 26 October 2001. He did not have a right to occupy the house at an earlier time under the purchase contract. He signed the contract to sell it on 25 May 2024 and settlement occurred on 20 July 2024. The house was Frank’s main residence for the full period he owned it and he did not use any part of it to produce income.

For CGT purposes, Frank is taken to have acquired the land on which the house was constructed on the date he entered into the contract, 14 August 2000. However, because the house was Frank’s main residence for the whole period between settlement of the purchase contract and settlement of the sale contract, it is fully exempt.

The period between when Frank entered into the purchase contract and started to live in the house (14 August 2000 to 25 October 2001) is ignored. This is because the relevant dates for the main residence exemption are the settlement dates or, if you had a right under the purchase contract to occupy the dwelling at an earlier time, that time until settlement of the sale contract.

End of example

Even though the settlement dates are used to calculate the period for which the main residence exemption applies, the dates you enter into the purchase and sale contracts are important.

A CGT event occurs when you enter into the sale contract. You include any capital gain in your tax return for the income year in which the CGT event occurs. The dates you enter into the purchase and sale contracts are also relevant for determining what method you can use to work out your capital gain from your main residence.

Example 64: partial exemption

The facts are the same as in the previous example except that Frank rented out the house from 26 October 2001, the date of settlement of the purchase contract, until 2 March 2003.

Frank makes a capital gain of $90,000 on the house. To work out the part of the capital gain that is not exempt, Frank must determine how many days in his ownership period the dwelling was not his main residence.

Frank had an ownership interest in the property from settlement of the purchase contract (26 October 2001) until settlement of the sale contract (20 July 2024), a total of 8,304 days.

The period between the dates the purchase contract was signed (14 August 2000) and settled (25 October 2001) is ignored. Because the house was not Frank’s main residence from 26 October 2001 to 2 March 2003 (493 days), he does not get the exemption for this period.

Frank calculates his capital gain as follows:

$90,000 capital gain × (493 days ÷ 8,304 days) = $5,343 taxable portion

Because Frank entered into the purchase contract after 11:45am AEST on 21 September 1999 and entered into the sale contract after owning the house for at least 12 months, he can reduce his capital gain by the CGT discount of 50% after applying any capital losses.

Because Frank signed the sale contract on 25 May 2024, the CGT event occurred in the 2023–24 income year, even though settlement occurred in the next income year. Frank writes the capital gain on his 2024 tax return.

End of example

Is the dwelling your main residence?

The following factors may be relevant in working out whether a dwelling is your main residence:

  • the length of time you live there (there is no minimum time a person has to live in a home before it is considered to be their main residence)
  • whether your family lives there
  • whether you have moved your personal belongings into the home
  • the address to which your mail is delivered
  • your address on the electoral roll
  • the connection of services (for example, phone, gas or electricity)
  • your intention in occupying the dwelling.

A mere intention to construct or occupy a dwelling as your main residence, without actually doing so, is not sufficient to get the exemption.

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.

In certain circumstances, you may choose to treat a dwelling as your main residence even though:

Moving into a dwelling

A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time. If you purchased the dwelling, this would generally be the date of settlement of the purchase contract. However, if there is a delay in moving in because of illness or other unforeseen circumstances, the exemption may still be available from the time you acquired your ownership interest in the dwelling.

If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest.

As mentioned earlier, there is a special rule that allows you to treat more than one dwelling as your main residence for a limited time if you are changing main residences, see Moving from one main residence to another.

Example 65: moving in as soon as practicable

Mary signs a contract to buy a townhouse on 1 March 2024. She is to take possession when settlement occurs on 30 April 2024.

On 11 March 2024, Mary is directed by her employer to go overseas on an assignment for 4 months, leaving on 25 March 2024. Mary moves into the townhouse on her return to Australia in late July 2024.

Mary’s overseas assignment was unforeseen at the time she bought the property. As she moved in as soon as practicable after settlement of the contract occurred, Mary can treat the townhouse as her main residence from the date of settlement until she moved in.

End of example

Land adjacent to the dwelling

The land adjacent to a dwelling is also exempt if:

  • during the period you owned it, the land is used mainly for private or domestic purposes in association with the dwelling
  • the total area of the land around the dwelling, including the land on which it stands, is not greater than 2 hectares. If the land used for private purposes is greater than 2 hectares, you can choose which 2 hectares are exempt but the land you choose must include the land on which the dwelling is built.

Land is adjacent to your dwelling if it is close to, near, adjoining or neighbouring the dwelling.

If you sell any of the land adjacent to your dwelling separately from the dwelling, the land is not exempt. It is only exempt when sold with the dwelling. There is an exception if the dwelling is accidentally destroyed and you sell the vacant land or vacant land adjacent to your dwelling is compulsorily acquired. See:

Any part of the land around a dwelling used to produce income is not exempt, even if the total land is less than 2 hectares. However, the dwelling and any buildings and other land used in association with it remain exempt if you don't use them to produce income.

Example 66: land used for private purposes

Tim bought a home with 15 hectares of land in November 2001. He uses 10 hectares of the land to produce income and 5 hectares for private purposes. Tim can get the main residence exemption for the home and 2 hectares of land he selects out of the 5 hectares that are used for private purposes.

Tim gets a valuation which states that the home and 2 hectares of land that he has selected are worth two-thirds of the total value of the property. The relative values of the different parts of the property remained the same between the time of purchase and the time of sale.

Tim entered into a contract to sell the property on 8 May 2024. The capital gain from the property is $150,000. Tim may claim the main residence exemption on the two-thirds of the capital gain attributable to the house and 2 hectares of land, that is, $100,000.

Because he entered into the contract to acquire the property after 11:45 am AEST on 21 September 1999 and owned it for at least 12 months, Tim reduces his remaining $50,000 gain (attributable to the land) by the CGT discount of 50% after applying any capital losses.

End of example

Other structures associated with the dwelling

A flat or home unit often includes areas (for example, a laundry, storeroom or garage) that are physically separate from the flat or home unit. As long as you use these areas primarily for private or domestic purposes in association with the flat or home unit for the whole period you own it, they are exempt on the same basis that the flat or home unit is exempt.

However, if you dispose of one of these structures separately from the flat or home unit, they are not exempt. If one of these structures is compulsorily acquired without your flat or home unit also being acquired, see Compulsory acquisition of part of your main residence.

Partial exemption for main residence

If a CGT event happens to a dwelling you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you get only a partial exemption.

You calculate the part of the capital gain that is taxable as follows:

A × (B ÷ C)

Where:

  • A is total capital gain made from the CGT event
  • B is number of days in your ownership period when the dwelling was not your main residence
  • C is total number of days in your ownership period

Example 67: main residence for part of the ownership period

Andrew bought a house on 1 hectare of land under a contract that was settled on 1 July 1991 and moved in immediately. On 1 July 1994, he moved out and began to rent out the house. He did not choose to treat the house as his main residence for the period after he moved out, although he could have done this under the continuing main residence status after dwelling ceases to be your main residence rule. The home first used to produce income rule does not apply because Andrew used the home to produce income before 21 August 1996.

A contract for the sale of the house was entered into on 1 July 2023 and settled on 31 August 2023 and Andrew made a capital gain of $100,000. As he is entitled to a partial exemption, Andrew’s capital gain is as follows:

$100,000 × (10,654 days ÷ 11,750 days) = $90,672

As Andrew entered into the contract to acquire the house before 11:45 am AEST on 21 September 1999 but the CGT event occurred after this date, and he had owned the house for at least 12 months, Andrew can choose to use the discount method or the indexation method to calculate his capital gain.

End of example

If a dwelling was not your main residence for the whole time you owned it, some special rules may entitle you to a full exemption or to extend the partial exemption you would otherwise get. These rules apply to land or a dwelling if you:

Note: You can't choose to treat a building or a unit in a building as your main residence if immediately after you cease to occupy it as your main residence you commence converting it into commercial premises.

Dwelling used to produce income

Usually, you can't get the full main residence exemption if you acquired your dwelling on or after 20 September 1985, used it as your main residence and you:

  • used any part of it to produce income during all or part of the period you owned it
  • would be allowed a deduction for interest had you incurred on money borrowed to acquire the dwelling (interest deductibility test).

The interest deductibility test applies regardless of whether you actually borrowed money to acquire your dwelling. You must apply it on the assumption that you did borrow money to acquire the dwelling.

If you rent out part of your home, you would be entitled to deduct part of the interest if you had borrowed money to acquire the dwelling.

If you run a business or professional practice in part of your home, you would be entitled to deduct part of the interest on money you borrowed to acquire the dwelling if:

  • part of the dwelling is set aside exclusively as a place of business and is clearly identifiable as such
  • that part of the home is not readily adaptable for private use, for example, a doctor’s surgery located within the doctor’s home.

You would not be entitled to deduct any interest expenses if, for convenience, you use a home study to undertake work usually done at your place of work. Similarly, you would not be entitled to deduct interest expenses if you do paid child-minding at home (unless a special part of the home was set aside exclusively for that purpose). In these situations, you could still get a full main residence exemption.

Example 68: renting out part of a home

Thomas purchased a home under a contract that was settled on 1 July 1999 and sold it under a contract that was settled on 30 June 2024. The home was his main residence for the entire time.

Throughout the period Thomas owned the home, a tenant rented one bedroom, which represented 20% of the home. Both Thomas and the tenant used the living room, bathroom, laundry and kitchen, which represented 30% of the home. Only Thomas used the remainder of the home. Therefore, Thomas would be entitled to a 35% deduction for interest if he had incurred it on money borrowed to acquire his home. The home first used to produce income rule does not apply because Thomas used the home to produce income from the date he purchased it.

Thomas made a capital gain of $120,000 when he sold the home. Of this total gain, the following proportion is not exempt:

Capital gain × percentage of floor area = taxable portion

$120,000 × 35% = $42,000

As Thomas entered into the contract to acquire the home before 11:45 am AEST on 21 September 1999, and entered into the contract to sell it after he had held it for at least 12 months, he can use either the indexation or the discount method to calculate his capital gain.

End of example

If you set aside and use part of the dwelling exclusively as a place of business, you can't get a CGT exemption for that part of the dwelling by not claiming a deduction for the interest. Nor can you include interest in the cost base if you are entitled to a deduction but don't claim it.

You can still get a full main residence exemption if someone else uses part of your home to produce income and you receive no income from that person.

When a CGT event happens to the home, the proportion of the capital gain or capital loss that is taxable is an amount that is reasonable according to the extent to which you would have been able to deduct the interest on money borrowed to acquire the home.

In most cases, this is the proportion of the floor area of the home that is set aside to produce income and the period you use the home to produce income. This includes if the dwelling is available (for example, advertised) for rent.

Example 69: running a business in part of a home for part of the period of ownership

Ruth entered into a contract to buy her home that settled before 11:45 am AEST on 21 September 1999. Ruth owned the home for more than 12 months. The home was her main residence for the entire period she owned it.

For half the period Ruth owned the home, she used part of the home to operate her photographic business. She modified the rooms for that purpose and they were no longer suitable for private and domestic use. They represented 25% of the total floor area of the home.

When she sold the home, Ruth made a capital gain of $80,000. The following proportion of the gain is taxable:

(A × B) × C = D

Where:

  • A is capital gain
  • B is percentage of floor area not used as main residence
  • C is percentage of period of ownership when that part of the home was not used as main residence
  • D is taxable portion

($80,000 × 25%) × 50% = $10,000

As Ruth entered into the contract to acquire the home before 11:45 am AEST on 21 September 1999, and entered into the contract to sell it after she had held it for at least 12 months, she can use either the indexation or discount method to calculate her capital gain.

The home first used to produce income rule does not apply, because Ruth used the home to produce income from the date she purchased it.

End of example

For more information, see Rental properties guide 2024.

Home first used to produce income

If you start using part or all of your main residence to produce income for the first time after 20 August 1996, a special rule affects the way you calculate your capital gain or capital loss.

In this case, you are taken to have acquired the dwelling at its market value at the time you first used it to produce income if all of the following apply:

  • you acquired the dwelling on or after 20 September 1985
  • you first used the dwelling to produce income after 20 August 1996
  • when a CGT event happens to the dwelling, you would get only a partial exemption, because you used the dwelling to produce assessable income during the period you owned it
  • you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income.

If all of the above apply, you must work out your capital gain or capital loss using the market value of the dwelling at the time you first used it to produce income. You don't have a choice.

A similar rule applies if you inherit a dwelling that was the deceased’s main residence and you use it to produce income, see Using a home you inherited to produce income.

Full exemption

You may have made the choice to treat a dwelling as your main residence after the dwelling ceases to be your main residence, see Continuing main residence status after dwelling ceases to be your main residence. In this case, if the dwelling is fully exempt, the ‘home first used to produce income’ rule does not apply.

In working out the amount of capital gain or capital loss, the period before the dwelling is first used by you to produce income is not taken into account. The extent of the exemption depends on the period after that time and the proportion of the home used to produce income. The following 3 examples explain this.

If the ‘home first used to produce income’ rule applies and the period between when you first used the dwelling to produce income and the CGT event happening is less than 12 months, the CGT discount method is not available.

Example 70: home becomes a rental property after 20 August 1996

Erin purchased a home on 0.9 hectares of land in July 2001 for $280,000. The home was her main residence until she moved into a new home on 1 August 2004. On 2 August 2004, she commenced to rent out the old home. At that time, the market value of the old home was $450,000.

Erin does not want to treat the old home as her main residence, as she wants the new home to be treated as her main residence from when she moved into it.

On 14 April 2024, Erin sold the old home for $496,000. Erin is taken to have acquired the old home for $450,000 on 2 August 2004, and calculates her capital gain to be $46,000.

Because Erin is taken to have acquired the old home on 2 August 2004 and has held it for more than 12 months, she can use the discount method to calculate her capital gain. As Erin has no capital losses, she includes a capital gain of $23,000 in her tax return 2024.

End of example

 

Example 71: part of home first used to produce income after 20 August 1996

Louise purchased a home in December 1992 for $200,000. The home was her main residence. On 1 November 2022, she started to use 50% of the home for a consultancy business. At that time the market value of the house was $320,000.

She decided to sell the property in August 2023 for $350,000. As Louise was still living in the home, she could not get a full exemption under the continuing main residence status after dwelling ceases to be your main residence rule. The capital gain is 50% of the proceeds less the cost base.

Percentage of use × (proceeds − cost base) = capital gain

50% × ($350,000 − $320,000) = $15,000

Louise is taken to have acquired the property on 1 November 2022 at a cost of $320,000. Because she is taken to have acquired it at this time, Louise is taken to have owned it for less than 12 months and must use the 'other' method to calculate her capital gain.

End of example

If you make the choice to continue to treat a dwelling as your main residence after it ceases to be your main residence (see Continuing main residence status after dwelling ceases to be your main residence) and you don't get a full exemption, the ‘home first used to produce income’ rule may apply.

Example 72: dwelling used to produce income for more than 6 years and first used to produce income after 20 August 1996

Roya purchased an apartment in Australia for $280,000 under a contract that was settled on 15 September 1995, and immediately started using the apartment as her main residence.

On 29 September 1997, she moved overseas and began renting out the apartment. During the time she was overseas, she did not acquire another dwelling and continued to rent out the apartment. After she returned to Australia in July 2023, she sold the apartment for $555,000. Settlement occurred on 29 September 2023 and she incurred $15,000 in real estate agent’s and solicitor’s costs.

As Roya rented out the apartment, she is only entitled to choose to continue to treat the dwelling as her main residence during her absence for a maximum of 6 years, that is, for the period 29 September 1997 to 29 September 2003.

As Roya is only entitled to a partial CGT exemption, she first used the property to produce income after 20 August 1996, and she would have been entitled to a full CGT exemption for the dwelling immediately before she started renting it out, she treats the dwelling as having been acquired on 29 September 1997 at the market value at that time, which was $340,000.

Roya works out her capital gain as follows:

  • capital proceeds of $555,000
  • cost base of $355,000 ($340,000 + $15,000)
  • total capital gain of $200,000.

Non-main residence days 7,305 (30 September 2003 to 29 September 2023)

Ownership period days 9,497 (29 September 1997 to 29 September 2023)

$200,000 × (7,305 days ÷ 9,497 days) = $153,838

29 September 1997 is the new deemed acquisition date.

Roya chooses to use the discount method and, because she has no other capital gains or capital losses, she includes a net capital gain of $76,919 ($153,838 × 50%) in her tax return 2024.

End of example

Moving from one main residence to another

If you acquire a new home before you dispose of your old one, both dwellings are treated as your main residence for up to 6 months if:

  • the old dwelling was your main residence for a continuous period of at least 3 months in the 12 months before you disposed of it
  • you didn't use the old dwelling to produce assessable income in any part of that 12 months when it was not your main residence, and
  • the new dwelling becomes your main residence.

If you dispose of the old dwelling within 6 months of acquiring the new one, both dwellings are exempt for the whole period between when you acquire the new one and dispose of the old one.

Example 73: exemption for both homes

Jill and Norman bought their new home under a contract that was settled on 1 January 2024 and they moved in immediately. They sold their old home under a contract that was settled on 15 April 2024. Both the old and new homes are treated as their main residence for the period 1 January to 15 April, even though they did not live in the old home during that period.

End of example

If it takes longer than 6 months to dispose of your old home, both homes are exempt only for the last 6 months before you dispose of the old one. You get only a partial exemption when a CGT event happens to your old home.

Example 74: partial exemption for old home

Jeneen and John bought their home under a contract that was settled on 1 January 2000 and they moved in immediately. It was their main residence until they bought another home under a contract that was entered into on 2 November 2022 and settled on 1 January 2023.

They retained their old home after moving into the new one on 1 January 2023, but did not use the old one to produce income. They sold the old home under a contract that was settled on 1 October 2023. They owned this home for a total period of 8,675 days.

Both homes are treated as their main residence for the period 1 April 2023 to 1 October 2023, the last 6 months that Jeneen and John owned their old home. Therefore, their old home is treated as their main residence only for the period before settlement of their new home and during the last 6 months before settlement of the sale of the old home.

The 90 days from 1 January 2023 to 31 March 2023, when the old home was not their main residence, are taken into account in calculating the proportion of their capital gain that is taxable (90 ÷ 8,675).

Because they entered into the contract to acquire their old home after 11:45 am AEST on 21 September 1999 and entered into the contract to sell it after they had held it for at least 12 months, Jeneen and John can use the discount method to calculate their capital gain.

End of example

If it takes longer than 6 months to dispose of your old home, you may get an exemption for the old home for the period in excess of the 6 months by choosing to treat it as your main residence for that period under the ‘continuing main residence status after dwelling ceases to be your main residence’ rule. If you do this, you get only a partial exemption when you dispose of your new home.

Example 75: partial exemption for new home

The facts are the same as in the previous example, except that Jeneen and John choose to continue to treat their old home as their main residence for the period from 1 January 2023 to 31 March 2023 under the continuing main residence status after dwelling ceases to be your main residence rule.

This means they get a full exemption when they sell it.

Because both homes can only be exempt for a maximum of 6 months when you are moving from one to the other, Jeneen and John will not get a full exemption for their new home when they sell it. The exemption would not be available for the new home for the 90 days from 1 January 2023 to 31 March 2023.

End of example

Status after dwelling ceases to be your main residence

In some cases, you can choose to treat a dwelling as your main residence even though you no longer live in it. You can't make this choice for a period before a dwelling first becomes your main residence. See Is the dwelling your main residence?

Example 76: not main residence until you move in

Therese bought a house and rented it out immediately. Later, she stopped renting it out and moved in.

Therese can't choose to treat the house as her main residence during the period she was absent under the continuing main residence rule, because the house was not her main residence before she rented it out. She will only be entitled to a partial exemption if she sells the dwelling.

End of example

This choice needs to be made only for the income year that the CGT event happens to the dwelling, for example, the year that you enter into a contract to sell it. If you own both:

  • the dwelling that you can choose to treat as your main residence after you no longer live in it
  • the dwelling you actually lived in during that period      
    • you make the choice for the income year you enter into the contract to sell the first of those dwellings.

If you make this choice, you can't treat any other dwelling as your main residence for that period (except for a limited time if you are changing main residences, see Moving from one main residence to another).

If you don't use it to produce income (for example, you leave it vacant or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you stop living in it.

If you do use it to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to 6 years after you stop living in it (see Example 72). If you make this choice and as a result of it the dwelling is fully exempt, the home first used to produce income rule does not apply.

Example 77: one period of absence of 10 years

Lisa bought a house after 20 September 1985 but stopped using it as her main residence for the 10 years immediately before she sold it. During this period, she rented it out for 6 years and left it vacant for 4 years.

Lisa chooses to treat the dwelling as her main residence for the period after she stopped living in it, so she disregards any capital gain or capital loss she makes on the sale of the dwelling. The maximum period the dwelling can continue to be her main residence while she used it to produce income is 6 years. However, while the house is vacant, the period she can treat the dwelling as her main residence is unlimited. This means the exemption applies for the whole 10 years that she was absent from the dwelling.

As the dwelling is fully exempt because Lisa made the choice to treat the dwelling as her main residence, the home first used to produce income rule does not apply.

The maximum period that Lisa can treat the dwelling as her main residence whilst it was being used to produce income is a total of 6 years even if the period the dwelling was income producing was broken by a period of vacancy. For example, if Lisa rented the dwelling for 4 years, left it vacant for 3 years and rented for 3 years, she could only treat the dwelling as her main residence for 9 of the 10 years that she was not living there.

End of example

You can choose when you want to stop the period covered by this choice.

For information on when and how you make a choice, see Choices.

Example 78: choosing to stop the period covered by the choice early

James bought his home in Brisbane on 1 July 2003 and moved in immediately. On 31 July 2017, he moved to Perth and rented out his Brisbane home. James bought a new residence in Perth on 31 January 2023. He sold the property in Brisbane on 31 July 2023. In completing his 2024 tax return, James decided to continue to treat the Brisbane property as his main residence after he moved out of it, but only until 31 January 2023, when he purchased his new main residence in Perth.

End of example

If you rent out the dwelling for more than 6 years, the ‘home first used to produce income’ rule may apply, which means you are taken to have acquired the dwelling at its market value at the time you first used it to produce income. See Home first used to produce income.

If you are absent more than once during the period you own the home, the 6-year maximum period that you can treat it as your main residence while you use it to produce income applies separately to each period of absence.

Example 79: 2 periods of absence of 8 years

Lana bought a house after 20 September 1985. For the last 20 years prior to selling the house she stopped using it as her main residence for 2 periods of 8 years. During each period, she rented it out for 6 years and left it vacant for 2 years. Between the first and second period of absence she lived in the dwelling for 2 years. She sold it 2 years after last returning to live in the house.

Lana chooses to treat the dwelling as her main residence for the periods after she stopped living in it. She disregards any capital gain or capital loss she makes on selling it as the period of income production during each absence is not more than 6 years. Lana is entitled to another maximum period of 6 years as she returned to live in the dwelling between the periods of absence. See example 80 for more detail where the period of income production exceeds 6 years.

End of example

 

Example 80: home ceases to be the main residence and is used to produce income for more than 6 years during a single period of absence

1 July 1994

Ian settled a contract to buy a home in Sydney on 0.9 hectares of land and used it as his main residence.

1 January 1996

Ian was posted to Brisbane and settled a contract to buy another home there.

1 January 1996 to 31 December 2000

Ian rented out his Sydney home during the period he was posted to Brisbane.

31 December 2000

Ian settled a contract to sell his Brisbane home and he chose not to claim the main residence exemption for this property. The tenant left his Sydney home, and Ian decided to leave it vacant.

The period of 5 years from 1 January 1996 to 31 December 2000 is the first period the Sydney home was used to produce income for the purpose of the 6-year test.

1 January 2001

Ian was posted from Brisbane to Melbourne for 3 years and settled a contract to buy a home in Melbourne. He didn't return to his Sydney home at this time.

1 March 2001

Ian again rented out his Sydney home, this time for 2 years.

28 February 2003

The tenant of his Sydney home left, and Ian again chose to leave it vacant.

The period of 2 years from 2001 to 2003 is the second period the Sydney home was used to produce income under the 6-year test.

31 December 2003

Ian sold his home in Melbourne. Ian chose not to claim the main residence exemption on the sale of this property.

31 December 2004

Ian returned to his home in Sydney and it again became his main residence.

28 February 2024

Ian settled a contract to sell his Sydney home.

As Ian did not claim the main residence exemption for either of his Brisbane or Melbourne homes he is able to choose to treat the Sydney home as his main residence for the period after he stopped living in it. The effect of making this choice is that any capital gains Ian made on the sale of both his Brisbane home in 2000–01 and his Melbourne home in 2003–04 are not exempt.

Ian can't get the main residence exemption for the whole period of ownership of the Sydney home because the combined periods he used it to produce income (1 January 1996 to 31 December 2000 and 1 March 2001 to 28 February 2003) during his one absence were more than 6 years.

As a result, the Sydney house is not exempt for the period it was used to produce income that exceeds the 6-year period, that is, one year.

If the capital gain on the disposal of the Sydney home is $250,000, he calculates the amount of the gain that is taxable as follows:

Period of ownership of the Sydney home:

1 July 1994 to 28 February 2024 = 10,835 days

Periods the Sydney home was used to produce income after Ian stopped living in it.

  1. 1 January 1996 to 31 December 2000 – 1,827 days.
  2. 1 March 2001 to 28 February 2003 – 730 days.
  3. A total of 2,557 days

First 6 years the Sydney home was used to produce income.

  1. 1 January 1996 to 31 December 2000 – 1,827 days.
  2. 1 March 2001 to 28 February 2002 – 365 days.
  3. A total of 2,192 days.
  4. Income producing for more than 6 years after Ian stopped living in it:
    2,557 − 2,192 = 365 days

Proportion of capital gain taxable in 2023–24

$250,000 × (365 ÷ 10,835) = $8,421

Because Ian entered into the contract to acquire the house before 11:45 am AEST on 21 September 1999 and entered into the contract to sell it after that time, and owned it for at least 12 months, he can use either the indexation or the discount method to calculate his capital gain.

The home first used to produce income rule does not apply because the home was first used by Ian to produce income before 21 August 1996.

End of example

Home used to produce income and then you stop living in it

If you use any part of your home to produce income before you stop living in it, you can't apply the continuing main residence status after dwelling ceases to be your main residence rule to that part. This means you can't get the main residence exemption for that part of the dwelling either before or after you stop living in it.

Example 81: ceasing to live in a home after part of it is used to produce income

Caroline purchased a home under a contract that was settled on 1 July 1999, and she moved in immediately. She used 75% of the home as her main residence and the remaining 25% as a doctor’s surgery, which she used until 30 June 2018.

On 1 July 2018, she moved out and rented out the home until it was sold under a contract that was settled on 30 June 2024. Caroline chose to treat the dwelling as her main residence for the 6 years she rented it out. She made a capital gain of $100,000 when she sold the home.

As 25% of the home was not used as her main residence during the period before Caroline stopped living in it, part of the capital gain is taxable, calculated as follows:

$100,000 × 25% = $25,000

Because Caroline entered into the contract to acquire the house before 11:45 am AEST on 21 September 1999 and sold it after she had owned it for at least 12 months, she can use either the indexation or the discount method to calculate her capital gain.<

The home first used to produce income rule does not apply because she used it to produce income from the time she purchased it.

End of example

Constructing, renovating or repairing a dwelling on land you already own

Generally, if you build a dwelling on land you already own, the land does not qualify for exemption until the dwelling becomes your main residence. However, you can choose to treat land as your main residence for up to 4 years, or a longer time if allowed by the Commissioner, before the dwelling becomes your main residence in certain circumstances.

You can choose to have this exemption apply if you acquire an ownership interest (other than a life interest) in land and you:

  • build a dwelling on the land
  • repair or renovate an existing dwelling on the land
  • finish a partly constructed dwelling on the land.

There are conditions that you must satisfy before you can claim the exemption. You must first finish building, repairing or renovating the dwelling and then:

  • move into the dwelling as soon as practicable after it is finished
  • continue to use the dwelling as your main residence for at least 3 months after it becomes your main residence. A period in which you choose to treat a dwelling as your main residence under the continuing main residence status after dwelling ceases to be your main residence rule is taken into account in working out the 3 month period.

The land, including the dwelling that is being built, renovated, repaired or finished on it, is exempt for the shorter of the following periods:

  • the 4-year period, or a longer time if allowed by the Commissioner, immediately before the date the dwelling becomes your main residence
  • the period between the date you acquired the land and the date the dwelling becomes your main residence.

However, if after you acquired the land you or someone else occupied a dwelling that was already on the land, the period of exemption starts from the date that dwelling was vacated.

Full exemption

If a newly constructed dwelling is built to replace a previous dwelling that was demolished or destroyed, you can get a full exemption when you dispose of the property if:

  • the original dwelling was your main residence for the full period you owned it, you didn't use it to produce assessable income, and it was on land covering an area of 2 hectares or less
  • the new dwelling becomes your main residence as soon as practicable after it is completed, it continues to be your main residence until you dispose of it, and that period is at least 3 months
  • you make a choice to treat the vacant land and new dwelling as your main residence in the period starting when you stopped occupying the previous dwelling and ending when the new dwelling becomes your main residence, and this period is 4 years, or a longer period if allowed by the Commissioner, or less
  • you dispose of the land and new dwelling together.

The Commissioner will consider extending the 4-year period if the delay in building or renovating the dwelling was:

  • beyond your control, for example the builder becomes bankrupt and is unable to complete the building or renovation.
  • caused by unforeseen circumstances such as illness or injury to you or a family member that caused the work to be stopped.

If you make this choice, you can't treat any other dwelling as your main residence for the period, except for a limited time under the moving from one main residence to another rule.

The effect of making the choice is that there will be an unbroken period of a main residence occupancy on the land from the time the original dwelling became your main residence until your new dwelling built on that land is sold.

Therefore, if you have a dwelling you acquired on or after 20 September 1985 and you live in it while you build your new home, you must decide whether to:

  • maintain the exemption for your old home, or
  • have the exemption apply to the land (including the dwelling that is being built, renovated, repaired or finished on it) for the shorter of      
    • the time from when you acquire the land until the new home becomes your main residence, or
    • the 4-year, or longer if allowed by the Commissioner, period immediately before the date on which the new home becomes your main residence.

If you acquired your old main residence before 20 September 1985, it is fully exempt. (The exception is if you made major capital improvements after that date and didn't use them exclusively as your main residence; see Major capital improvements to a dwelling acquired before 20 September 1985).This means you will benefit from choosing to treat the land on which your new dwelling is to be built, renovated, repaired or finished as your main residence for the relevant dates above.

You can't choose to have a shorter period of exemption for the new home in order to exempt the old home for part of the construction period.

For information on when and how you make a choice, see Choices.

Example 82: choosing to claim exemption for the land from the date of construction

Grant bought vacant land on which he intended to build a new home under a contract that was settled on 3 September 2008. He bought his previous home under a contract that was settled on 3 November 1995.

Grant finished building his new home on 3 September 2023. He moved into it on 7 October 2023, which was as soon as practicable after completion. He sold his previous home under a contract that was settled on 1 October 2023.

Grant can treat the new home as his main residence from 7 October 2019. In these circumstances, the main residence exemption applies for the period of 4 years immediately before the date the new home actually becomes his main residence. He can also claim the exemption for his previous home from 3 November 1995 to 6 October 2019.

Both homes are also exempt from 1 April 2023 to 1 October 2023, the date Grant disposed of the old home. This is because the maximum 6-month exemption also applies, see Moving from one main residence to another.

End of example

If you were to die at any time between entering into contracts for the construction work and the end of the first 3 months of residence in the new home, this exemption can still apply.

If you owned the land as a joint tenant and you die, the surviving joint tenant (or if none, the trustee of your estate) can choose to treat the land and the dwelling as your main residence for the shorter of:

  • 4 years before your death, or
  • the period starting when you acquired the land and ending when you die.

If there was already a dwelling on the land when you acquired it and someone else occupied it after that time, the surviving joint tenant (or if none, the trustee of your estate) can choose to treat the land and the dwelling as your main residence for the shorter of:

  • 4 years before your death, or
  • the period starting when the dwelling stopped being occupied so that it could be repaired or renovated and ending when you die.

If you are a surviving joint tenant, beneficiary or trustee of a deceased estate and a CGT event happens to your residential property in Australia that you inherited from a foreign resident, you will no longer be entitled to claim the main residence exemption for the deceased’s ownership period unless certain life events occurred within a continuous period of 6 years of the deceased individual becoming a foreign resident for tax purposes.

For more information, see Main residence exemption for foreign residents.

Partial exemption

If a newly constructed dwelling is built to replace an original dwelling that was demolished or destroyed more than 4 years before the new dwelling became your main residence and the Commissioner does not allow a longer period, you may be entitled to a partial exemption. You can get a partial exemption covering the period from 4 years prior to the date the new dwelling became your main residence if:

  • the original dwelling was your main residence for the full period you owned it, you did not use it to produce assessable income, and it was on land covering an area of 2 hectares or less
  • the new dwelling becomes your main residence as soon as practicable after it is completed, it continues to be your main residence until you dispose of it, and that period is at least 3 months
  • you make a choice to treat the vacant land and new dwelling as your main residence in the period of up to 4 years before the new dwelling becomes your main residence
  • you dispose of the land and new dwelling together.

As more than 4 years has elapsed, no exemption is available from the start of the original ownership period to the time when the original dwelling was vacated even though the original dwelling was the taxpayer’s main residence throughout that time.

If you don't make the choice, an exemption will only be available from the time the new dwelling became your main residence.

A partial exemption will also be available on the sale of a newly constructed dwelling built to replace a previous residence which was not your main residence for the whole time you owned it. For example, where you had rented out your property during the original ownership period, and you treated another dwelling as your main residence during that time.

Destruction of dwelling and sale of land

If your home is accidentally destroyed (such as through a natural disaster) and you then dispose of the vacant land on which it was built, you can choose to apply the main residence exemption as if the home had not been destroyed and continued to be your main residence.

You can get a full exemption for the land if you used it solely for private purposes in association with your home and it does not exceed 2 hectares. You can't claim the main residence exemption for this period for any other dwelling, except for a limited time if you are changing main residences, see Moving from one main residence to another.

You can only get this exemption where your home was accidentally destroyed. If the destruction of your home is intentional and just after the destruction you sell the vacant block of land, you can't get the main residence exemption.

Having a different home from your spouse or dependent child

If you and a dependent child under 18 years old have different homes for a period, you must choose one of the homes as the main residence for both of you for the period.

If you and your spouse have different homes for a period, you and your spouse must either:

  • choose one of the homes as the main residence for both of you for the period
  • nominate the different homes as your main residences for the period.

If you and your spouse nominate different homes for the period, and you own 50% or less of the home you have nominated, you qualify for an exemption for your share. If you own more than 50%, your share is exempt for half the period you and your spouse had different homes.

The same applies to your spouse. If your spouse owns 50% or less of the home they have nominated, they qualify for an exemption for their share. However, if your spouse owns more than 50% of the home, their share is exempt for only half the period you had different homes.

This rule applies to each home the spouses own, whether they have sole ownership or own the home jointly (either as joint tenants or tenants in common).

Your 'spouse' includes another person (of any sex) who:

  • you were in a relationship with that was registered under a prescribed state or territory law
  • although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

This rule applies also if you choose to treat a dwelling as your main residence when you no longer live in it, see Continuing main residence status after dwelling ceases to be your main residence, and this choice results in your having a different main residence from your spouse or a dependent child for a period.

For more information, see Choices.

Example 83: spouses with different main residences

Under a contract that was settled on 1 July 1999, Kathy and her spouse Grahame purchased a townhouse, in which they lived together. Grahame owns 70% of the townhouse while Kathy owns the other 30%.

Under a contract that was settled on 1 August 2001, they purchased a beach house, which they own in equal shares. From 1 May 2002, Kathy lives in their beach house while Grahame keeps living in the townhouse. Grahame nominated the townhouse as his main residence and Kathy nominated the beach house as her main residence.

Kathy and Grahame sold the beach house under a contract that was settled on 15 April 2024. As it was Kathy’s main residence and she owned 50% of it, she disregards her share of any capital gain or capital loss for the period she and Grahame had different homes (1 May 2002 to 15 April 2024).

As Grahame did not live in the beach house or nominate it as his main residence when he and Kathy had different homes, he does not ignore his share of any capital gain or capital loss for any of the period he owned it.

Grahame and Kathy also sold the townhouse, under a contract that was settled on 15 April 2024.

Because Grahame owns more than 50% of the townhouse, it is taken to have been his main residence for half of the period when he and Kathy had different homes.

If the total capital gain on the sale of the townhouse is $100,000, Grahame’s share of the capital gain is $70,000 (reflecting his 70% ownership interest). The amount of the gain that Grahame disregards under the main residence exemption is worked out as follows:

$70,000 × (1,035 days [see note 1] ÷ 9,056 days [see note 2]) = $8,000

Add

$70,000 × 50% × (8,021 days [see note 3] ÷ 9,056 days [see note 2]) = $31,000

Note 1: townhouse was Grahame’s home and he and Kathy didn't have different homes (1 July 1999 to 30 April 2002)

Note 2: total ownership period (1 July 1999 to 15 April 2024)

Note 3: when Grahame and Kathy had the different homes (1 May 2002 to 15 April 2024)

The total amount disregarded by Grahame is:

$8,000 + $31,000 = $39,000

As Grahame bought the townhouse before 11:45 am AEST on 21 September 1999 and entered into the contract to sell it after owning his share for at least 12 months, he can use either the indexation or the discount method to calculate his capital gain.

Kathy’s share of the $100,000 capital gain on the townhouse is $30,000, reflecting her 30% ownership interest. The amount she disregards is:

$30,000 × (1,035 days [see note 4] ÷ 9,056 days [see note 5]) = $3,429

Note 4: period before 1 May 2002 when the townhouse was Kathy’s home

Note 5: total ownership period (1 July 1999 to 15 April 2024)

As Kathy entered into the contract to buy the townhouse before 11:45 am AEST on 21 September 1999 and entered into the contract to sell it after owning her share for at least 12 months, she can use either the discount method to calculate her capital gain or the indexation method.

End of example

 

Example 84: different main residences

Anna and her spouse, Mark, jointly purchased a townhouse under a contract that was settled on 5 February 2000. They both lived in it from that date until 29 April 2024, when the contract of sale was settled. Anna owned more than 50% of the townhouse.

Before 5 February 2000, Anna had lived alone in her own flat, which she rented out after moving to the townhouse. She then sold her flat and settled the sale on 11 March 2001. Anna chose to treat the flat as her main residence from 5 February 2000 until she sold it under the continuing main residence status after dwelling ceases to be your main residence rule.

Because of Anna’s choice, Mark had a different main residence from Anna for the period 5 February 2000 to 11 March 2001. Therefore, Mark must either:

  • treat Anna’s flat as his main residence for that period
  • nominate the townhouse as his main residence for that period.

If he chooses to treat Anna’s flat as his main residence, a part of any gain Mark makes when he sells the townhouse will be taxable. He will not get an exemption for the townhouse for the period that he nominated Anna’s flat as his main residence (that is, 5 February 2000 to 11 March 2001).

If Mark nominates the townhouse as his main residence, he qualifies for a full exemption on any capital gain he makes when it is sold because he owned 50% or less of it. However, because Mark and Anna have different main residences as a result of Mark’s choice, and Anna owns more than 50% of the flat, her gain on the flat will only qualify for a 50% exemption for the period from 5 February 2000 to 11 March 2001.

Any capital gain Anna makes on the townhouse is taxable, except for the period from 12 March 2001 to 29 April 2024 and the part that is ignored under the moving from one main residence to another rule.

End of example

Major capital improvements to a dwelling acquired before 20 September 1985

If you acquired a dwelling before 20 September 1985 and you make major capital improvements after that date, part of any capital gain you make when a CGT event happens to the dwelling could be taxable. Even though you acquired the dwelling before CGT started, major capital improvements are considered to be separate CGT assets from the original asset, and may therefore be subject to CGT in their own right if you make them on or after 20 September 1985.

If the dwelling is your main residence and you use the improvements as part of your home, they are still exempt. This includes improvements on land adjacent to the dwelling (for example, installing a swimming pool) if the total land, including the land on which the home stands, is 2 hectares or less.

However, if the dwelling is not your main residence or you used the improvements to produce income for any period, the part of any gain that is attributable to the improvements for that period is taxable.

A capital improvement to an existing structure, such as a renovation to your house, is taken to be major if its original cost (indexed for inflation if the improvements were made under a contract entered into before 11:45 am AEST on 21 September 1999) is:

  • more than 5% of the amount you receive when you dispose of the dwelling, and
  • greater than a certain threshold. The threshold increases every income year to take account of inflation. Improvement thresholds for 1985–86 to 2023–24 are shown in Table 1.

When you dispose of the dwelling, you calculate the capital gain or capital loss on the major improvements by taking away the cost base of the improvements from the proceeds of the sale that are reasonably attributable to the improvements:

A = B − C

Where:

  • A is capital gain on major improvements
  • B is proceeds of sale attributable to improvements
  • C is cost base of improvements.

You can choose to calculate the capital gain made on the improvements using either the indexation or the discount method if:

  • the improvements were made under a contract entered into at or before 11:45 am AEST on 21 September 1999
  • the dwelling was sold after that time, and
  • you owned the improvements for at least 12 months.

If you entered into the contract to make the improvements after 11:45 am AEST on 21 September 1999 and you owned them for more than 12 months, you can calculate your capital gain using the CGT discount of 50%.

In calculating the amount of capital proceeds to be attributed to the improvements, you must take whatever steps are appropriate to work out their value. If you make an estimate of this amount, it must be reasonable and you must be able to show how you arrived at the estimated amount.

Example 85: improvement to a dwelling acquired before 20 September 1985

Martin bought a home in 1984. On 1 December 1989, he undertook major renovations to his home, costing $150,000. He sold the home for $500,000 under a contract that was settled on 1 December 2023. At the date of sale, the indexed cost base of the improvements was $186,750.

Of the $500,000 he received for the home, $200,000 could be attributed to the improvements. Martin used the improvements to produce income from the time they were finished until the time he sold them with the home.

The home first used to produce income rule does not apply to the improvements because they were first used to produce income before 21 August 1996.

The cost base of the improvements is more than 5% of the $500,000 capital proceeds (that is, $25,000) and more than the 2023–24 threshold of $174,465. Therefore, because the improvements were used to produce income, the capital gain on the improvements is taxable. (Because the improvements were made under a contract entered into before 11:45 am AEST on 21 September 1999 the indexed cost base can be used.)

As Martin acquired the improvements before 11:45 am AEST on 21 September 1999 and sold the home after he had held the improvements for at least 12 months, he could use either the indexation method or the discount method to calculate his capital gain on the improvements.

Martin calculates his capital gain using the indexation method as follows:

  1. Amount of proceeds attributable to the improvements is $200,000.
  2. Subtract cost base of improvements indexed for inflation of $186,750.
  3. Total taxable capital gain is $13,250.

Martin’s capital gain using the discount method (assuming he has no capital losses or other capital gains in the 2023–24 income year and does not have any unapplied net capital losses from earlier years) is:

  1. Amount of proceeds attributable to the improvements is $200,000.
  2. Subtract cost base of improvements (without indexation) of $150,000.
  3. Equals a capital gain of $50,000.
  4. Subtract 50% discount of $25,000.
  5. The net capital gain is $25,000.

Martin chooses the indexation method because this gives him a lower capital gain.

Note: If the improvements had been used as part of Martin’s main residence, this gain would be exempt. However, if the home (including the improvements) had been rented out for one-third of the period, one-third of the capital gain made on the improvements would have been taxable.

If construction of the improvements started after 13 May 1997 and they were used to produce income, Martin would also reduce the cost base by the amount of any capital works deductions he claimed or can claim, see Cost base adjustments for capital works deductions. If Martin makes a capital loss, the reduced cost base of the improvements is reduced by the amount of any capital works deductions irrespective of when construction started.

End of example

Buildings or structures constructed on land acquired before 20 September 1985

Buildings or structures constructed on or after 20 September 1985 on land acquired before that date are also considered to be separate CGT assets from the original land. The major capital improvement threshold and 5% of capital proceeds rules don't apply to them. Therefore, they may be subject to CGT if you use them other than as your main residence.

Dwellings transferred after marriage or relationship breakdown

Special rules apply to dwellings transferred to you from a spouse, or a company or trustee of a trust, if the marriage or relationship breakdown rollover applies.

For more information, see Real estate and main residence.

Inherited main residence

If you inherit a deceased person’s dwelling, you may be exempt or partially exempt when a CGT event happens to it. The same exemptions apply if a CGT event happens to a deceased’s estate of which you are the trustee. Flowchart 3.6 in Appendix 3 sets out the full exemption rules if you inherit a dwelling. Alternatively, the rules are set out below.

If you are a joint tenant and another joint tenant dies, their interest in the dwelling is taken to pass in equal shares to you and any other surviving joint tenants on that date.

For the purpose of the main residence exemption, you are treated as if that interest in the dwelling has passed to you as beneficiary of the deceased estate, which means the following rules apply to that interest.

If you are a surviving joint tenant, beneficiary or trustee of a deceased estate and a CGT event happens to your residential property in Australia that you inherited from a foreign resident, you may no longer be entitled to claim the main residence exemption for the deceased’s ownership period, depending on the length of time the deceased had been a foreign resident.

If you inherit an Australian residential property from a deceased person who had been a foreign resident for 6 years or less at the time of their death, the main residence exemption that the deceased accrued for the dwelling is available to you as the beneficiary. The main residence exemption means you may not pay CGT on any capital gain made after you sell or dispose of the inherited property, depending on the use of the property by both you and the deceased.

If you inherit an Australian residential property from a deceased person who had been a foreign resident for more than 6 years at the time of their death, any main residence exemption that the deceased person may have accrued for that dwelling is not available to you. This means you may have to pay CGT when you sell or dispose of the property.

If you inherit an Australian residential property and you have been a foreign resident for more than 6 years when you sell or dispose of the property, you can't claim the main residence exemption for your ownership period.

For more information, see Foreign residents and inherited property.

Full exemption

A full exemption will be applied depending on when the deceased died and when they acquired the property.

Deceased died before 20 September 1985

As you acquired the dwelling before 20 September 1985, any capital gain you make is exempt. However, major capital improvements you make to the dwelling on or after 20 September 1985 may be taxable, see Major capital improvements to a dwelling acquired before 20 September 1985.

Deceased died on or after 20 September 1985

A. The deceased acquired the dwelling before 20 September 1985 (it does not matter whether the dwelling was the main residence of the deceased person).

You may have an ownership interest in a dwelling that passed to you as a beneficiary in a deceased estate or you may have owned it as trustee of a deceased estate. In either case, you disregard any capital gain or capital loss you make from a CGT event that happens to the dwelling if either of the following 2 conditions applies.

  1. You disposed of your ownership interest within 2 years of the person’s death, that is, if the dwelling was sold under a contract, settlement occurred within 2 years. This exemption applies whether or not you used the dwelling as your main residence or to produce income during the 2-year period. The Commissioner has the discretion to extend the 2-year period for CGT events (such as a sale) happening in the 2008–09 income year and later years, see Commissioner may extend the 2-year time period.
  2. From the deceased’s death until you disposed of your ownership interest, the dwelling was not used to produce income and was the main residence of one or more of
    1. a person who was the spouse of the deceased immediately before the deceased’s death (but not a spouse who was permanently separated from the deceased)
    2. an individual who had a right to occupy the home under the deceased's will (including a right to occupy the home as a result of a court order under the relevant family provision legislation that takes effect as if it had been made as a codicil to the deceased's will)
    3. you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

The dwelling can be the main residence of one of the above people (even though they may have stopped living in it) if they choose to treat it as their main residence under the continuing main residence status after dwelling ceases to be your main residence rule.

The requirement that the dwelling is the main residence of an individual who had a right to occupy it under the deceased’s will is satisfied if the individual moves into the dwelling when it is first practicable to do so. This requirement will be satisfied where the delay in moving is because the dwelling can't be occupied until probate and administration of the estate is granted.

B. The deceased acquired the dwelling on or after 20 September 1985.

You disregard any capital gain or capital loss you make when a CGT event happens to the dwelling or your ownership interest in the dwelling if either of the following 2 points applies.

  1. Condition 2 in A above is met and the dwelling passed to you as beneficiary or trustee on or before 20 August 1996. For this to apply, the deceased must have used the dwelling as their main residence from the date they acquired it until their death, and they must not have used it to produce income.
  2. One of the conditions in A above is met, and the dwelling passed to you as beneficiary or trustee after 20 August 1996, and just before the date the deceased died it was      
    1. their main residence
    2. not being used to produce income.

A dwelling can still be regarded as the deceased’s main residence even though they stopped living in it, see Continuing main residence status after dwelling ceases to be your main residence.

Example 86: full exemption

Rodrigo was the sole occupant of a home he bought in April 1991. He did not live in or own another home.

He died in January 2023 and left the house to his son, Petro. Petro rented out the house and then disposed of it 15 months after his father died.

Petro is entitled to a full exemption from CGT, as he acquired the house after 20 August 1996 and disposed of it within 2 years of his father’s death.

If Petro did not sell the house within 2 years of his father's death due to circumstances beyond his control, he may ask the Commissioner to grant an extension of time, see Commissioner may extend the 2-year time period.

End of example

Partial exemption

If you don't qualify for a full exemption from CGT for the home, you may be entitled to a partial exemption.

You calculate your capital gain or capital loss as follows:

Capital gain or capital loss amount × (non-main residence days ÷ total days)

Non-main residence days

‘Non-main residence days’ is the number of days that the dwelling was not the main residence.

  1. If the deceased acquired the dwelling before 20 September 1985, non-main residence days is the number of days in the period from their death until settlement of your contract for sale of the dwelling when it was not the main residence of one of the following
    1. a person who was the spouse of the deceased (except a spouse who was permanently separated from the deceased)
    2. an individual who had a right to occupy the dwelling under the deceased’s will
    3. you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

Total days

  1. If the deceased acquired their ownership interest before 20 September 1985, ‘total days’ is the number of days from their death until you disposed of your ownership interest.
  2. If the deceased acquired the ownership interest on or after 20 September 1985, total days is the number of days in the period from when the deceased acquired the dwelling until you disposed of your ownership interest.

A further adjustment may be required if the dwelling was a main residence, but was partly used to produce income, for example, if, for a period, part of it was rented out or used as a place of business.

Example 87: partial exemption

Vicki bought a house under a contract that was settled on 12 February 1996 and she used it solely as a rental property. When she died on 17 November 1999, the house became the main residence of her beneficiary, Lesley. Lesley sold the property under a contract that was settled on 27 November 2023.

As Vicki had never used the property as her main residence, Lesley can't claim a full exemption from CGT. However, as Lesley used the house as her main residence, she is entitled to a partial exemption from CGT.

Vicki owned the house for 1,375 days and Lesley then lived in the house for 8,776 days, a total of 10,151 days. Assuming Lesley made a capital gain of $100,000, the taxable portion is:

$100,000 × (1,375 ÷ 10,151) = $13,545

In working out her capital gain, Lesley can use either the discount method or the indexation method. This is because, for the purposes of using those methods, she is taken to have acquired the property on 12 February 1996 (when Vicki acquired it) and this is before 11:45 am AEST on 21 September 1999, and more than 12 months before Lesley entered into the contract to sell it.

End of example

If you dispose of your ownership interest in a dwelling within 2 years of the person’s death, you can ignore the main residence days and total days in the period from the person’s death until you dispose of the dwelling if this lessens your tax liability. See Commissioner may extend the 2-year time period.

You also ignore any non-main residence days before the deceased’s death in calculating the capital gain or capital loss if:

  • you acquired the dwelling after 20 August 1996
  • the dwelling was the deceased’s main residence just before their death
  • the dwelling was not being used to produce income at the time of their death, and
  • the deceased was not a foreign resident for a continuous period of more than 6 years just before the deceased's death.

Using a home you inherited to produce income

If a person acquired their main residence on or after 20 September 1985, and they died and it passed to you as a beneficiary (or as trustee of their estate) after 20 August 1996, you are taken to have acquired the dwelling at its market value at the time you first used it to produce your income if:

  • you first used the dwelling to produce income after 20 August 1996
  • when a CGT event happens to the dwelling, you would get only a partial exemption because you used the dwelling to produce assessable income during the period you owned it
  • you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income
  • the CGT event did not happen to the dwelling within 2 years of the person’s date of death.

If all of the above apply, you must work out your capital gain or capital loss using the market value of the dwelling at the time you first used it to produce income. You don't have a choice.

Cost to you of acquiring the dwelling

If you acquire a dwelling the deceased had owned, there are special rules for calculating your cost base.

These rules apply in calculating any capital gain or capital loss when a CGT event happens to the dwelling.

The first element of the cost base and reduced cost base of a dwelling (its acquisition cost) is its market value at the date of death if either:

  • the dwelling was acquired by the deceased before 20 September 1985
  • the dwelling passes to you after 20 August 1996 (but not as a joint tenant), and it was the main residence of the deceased immediately before their death and was not being used to produce income at that date.

In any other case, your acquisition cost is the deceased’s cost base and reduced cost base on the day they died. You may need to contact the trustee or the deceased’s recognised tax adviser to obtain the details. If that cost base includes indexation, you must recalculate it to exclude the indexation component if you prefer to use the discount method to work out your capital gain from the property.

If you are a beneficiary, the cost base and the reduced cost base also include amounts that the trustee of the deceased’s estate would have been able to include in the cost base and reduced cost base.

Continuing main residence status

If the deceased was not living in the home at the date of their death, they or their trustee may have chosen to continue to treat it as their main residence. You may need to contact the trustee or the deceased’s recognised tax adviser to find out whether this choice was made. If it was, the dwelling can still be regarded as the deceased’s main residence:

  • for an indefinite period, if the dwelling was not used to produce income after the deceased stopped living in it, or
  • for a maximum of 6 years after they stopped living in it, if it was used to produce income after they stopped living in it.

Example 88: continuing main residence status

Aldo bought a house in March 1996 and lived in it.

He moved into a nursing home in December 2018 and left the house vacant. He chose to treat the house as his main residence after he stopped living in it under the Continuing main residence status after dwelling ceases to be your main residence rule.

Aldo died in February 2024 and the house passed to his beneficiary, Con, who uses the house as a rental property.

As the house was Aldo’s main residence immediately before his death and was not being used to produce income at that time, Con can get a full exemption for the period Aldo owned it.

If Con rented out the house and sold it more than 2 years after Aldo’s death, the capital gain for the period from the date of Aldo’s death until Con sold it is taxable, unless the Commissioner grants Con an extension of time.

If Con had sold the house within 2 years of Aldo’s death, he could have ignored the main residence days and total days between Aldo’s death and him selling it, which would have given him exemption for this period.

If Aldo had rented out the house after he stopped living in it, he could also have chosen to continue to treat it as his main residence. The house would be considered to be his main residence until his death because he rented it out for less than 6 years.

If this choice had been made, Con would get an exemption for the period Aldo owned the house.

End of example

Commissioner may extend the 2-year time period

A trustee or beneficiary of a deceased estate may apply to the Commissioner for an extension of the 2-year time period. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

  • the ownership of a dwelling or a will is challenged
  • the complexity of a deceased estate delays the completion of administration of the estate
  • a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the 2-year period (for example, the taxpayer or a family member has a severe illness or injury), or
  • settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee’s control.

These examples are not exhaustive.

In exercising the discretion, the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling.

In certain circumstances you may be eligible to use the safe harbour to extend the 2–year period without having to apply to the Commissioner to exercise discretion. For more information, see Extensions to the 2-year ownership period.

Inheriting a dwelling from someone who inherited it themselves

The formula for calculating the partial main residence exemption is adjusted if the deceased individual also acquired the interest in the dwelling on or after 20 September 1985 as a beneficiary (or trustee) of a deceased estate. The main residence exemption is calculated having regard to the number of days the dwelling was the main residence of yourself and the previous beneficiaries.

Example 89: partial exemption for beneficiaries

Ahmed acquired a dwelling after 20 September 1985.

The dwelling was his main residence from the date of settlement of the contract for purchase until he died. The number of days Ahmed owned the dwelling was 3,700.

Under his will, Ahmed left the dwelling to his son, Fayez. Fayez was the sole beneficiary of Ahmed’s estate. No other individual had a right to occupy the dwelling under Ahmed’s will.

Some years later, Fayez died. He had owned the dwelling for 2,600 days and it wasn’t his main residence at any time during this period.

The dwelling was left to Mardianah under Fayez’s will.

Mardianah sold the dwelling in 2023–24 and made a capital gain of $100,000. She owned the dwelling for 750 days and it wasn’t her main residence at any time during that period.

The taxable proportion of Mardianah’s $100,000 capital gain is $47,518. This is worked out as follows:

$100,000 × (2,600 + 750) ÷ (2,600 + 750 + 3,700) = $47,518

Because the combined period that Ahmed, Fayez and Mardianah owned the dwelling was more than 12 months, Mardianah can reduce her $47,518 capital gain by the 50% discount (after deducting any capital losses).

Because Mardianah gets an exemption for the period the dwelling was Ahmed’s main residence, her capital gain is less than it otherwise would have been.

End of example

For more information, see Deceased estates.

Death during construction

If an individual entered into a contract to construct, repair or renovate a home on land they already owned, and they die before certain conditions are met, the trustee may choose to have the home and land treated as the deceased’s main residence for up to 4 years before the home became (or was to become) their main residence.

The trustee can make this choice if the deceased dies before:

  • the home is finished
  • it was practicable for the home to be their main residence
  • they had lived in the home for 3 months.

If the trustee makes this choice, no other dwelling can be treated as the deceased’s main residence during that time.

If the trustee of a deceased estate disposes of residential property in Australia that was owned by a foreign resident, the trustee may no longer be entitled to claim the main residence exemption for the deceased’s ownership period.

For more information, see Main residence exemption for foreign residents.

Continue to: Loss, destruction or compulsory acquisition of an asset

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