Do You Pay Capital Gains Tax When Selling Your Home?

When selling a property, one of the biggest questions homeowners ask is whether they’ll be required to pay Capital Gains Tax (CGT). Fortunately, many Australian homeowners are fully exempt—thanks to the main residence exemption. However, this isn’t always the case.

Whether you’ve lived in the property the whole time or rented it out for a short period, it’s important to understand how CGT works, when it applies, and how to reduce your liability if it does.

Here’s what you need to know before you sell.

What is Capital Gains Tax (CGT)?

CGT is the tax you pay on any profit made when you sell an asset—like property—for more than its original cost. It’s not a separate tax, but part of your income tax and applied in the financial year the property is sold.

Your capital gain is calculated as the difference between your sale price and your cost base. The cost base includes:

• The original purchase price

• Stamp duty

• Legal and conveyancing fees

• Agent commissions and marketing fees

• Renovation or improvement costs (but not maintenance)

If the property increased in value over time, you may owe CGT—unless you qualify for an exemption.

When is Your Home Exempt from CGT?

Most homeowners won’t pay CGT when selling their main residence, provided they meet certain conditions:

• The property has been your main residence for the entire period you owned it

• It was not used to generate income, such as being rented out or used for business

• The land is 2 hectares or less

If all these conditions are met, your entire capital gain may be exempt from tax—even if the property has increased significantly in value.

When Does CGT Apply to a Home Sale?

If your home has been used to generate income or wasn’t your main residence for part of the time, a portion of the gain may be subject to CGT. This can happen in situations like:

• Renting out the property (even for a short time)

• Running a business from home

• Moving out and keeping the home as an investment

• Owning more than one property and designating another as your primary residence

CGT may also apply if you inherit a property and later sell it, or if you purchased the home with the intention of renovating and reselling it (which could trigger business income treatment rather than CGT).

Using the Six-Year Rule

If you move out of your home and rent it out, you may still be eligible for the main residence exemption for up to six years, provided:

• You don’t claim another property as your main residence during that time

• You eventually sell the property within that six-year period

If you move back into the property before selling it, the six-year exemption can reset. This rule can be particularly helpful for investors who relocate temporarily or want to hold onto a previous home while testing the rental market.

How to Reduce CGT on the Sale of Your Home

Even if CGT applies, there are still several ways to reduce the amount payable:

• Claim eligible costs: Renovation costs, legal fees, marketing costs, and agent commissions can all increase your cost base and reduce your gain.

• Use the 50% CGT discount: If you’ve held the property for more than 12 months, individuals may receive a 50% discount on the taxable gain.

• Time your sale strategically: Selling in a lower-income year could reduce the total tax payable, especially if your income is variable or you’re planning to retire.

• Consider ownership structure: If the property is owned jointly (e.g., with a spouse), the gain may be split, potentially lowering each person’s tax liability depending on income levels.

Bringing it all together

For many Australians, the main residence exemption means selling your home comes with no CGT at all. But if you’ve rented it out, used it for business, or moved out for a time, it’s worth understanding how CGT may apply—and how to reduce your tax exposure with smart planning.