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Principal Place of Residence (PPOR) CGT Exemptions

What is the main residence (PPOR)?

Generally, a dwelling is considered to be your main residence if:

  • you and your family live in it
  • your personal belongings are in it
  • it is the address your mail is delivered to
  • it is your address on the electoral roll
  • services such as gas and power are connected.

The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant.

To be your main residence, your property must have a dwelling on it and you must have lived in it. You are not entitled to the exemption for a vacant block.

What Is a Dwelling?

A dwelling is anything used wholly or mainly for residential accommodation, such as:

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

A flat or home unit often includes areas that are physically separate, such as laundry, storeroom or garage. They are exempt from CGT on the same basis as the flat or unit. However, if you dispose of one of these structures separately from the flat or home unit (for example, you sell the garage), they are not exempt from CGT unless they were compulsorily acquired.

There are a number of CGT exemptions available for those that treat a home as their principal place of residence, they include

4 Year PPOR Construction Exemption

Generally when you build a new home or buy an existing home that you intend to repair or renovate before moving in.

The ATO will allow the home to be deemed your principal home for CGT purposes (no capital gains tax) provided you move in within 4 years from the time of the original purchase.

So if you buy a block of land and then build a home to live in, you have up to 4 years to complete the construction and exercise the right to call it your principal home and avoid any CGT if and when you sell, under S.118-150 of the ITAA 1997.


However to exercise the right to deem the home to be your principal home of residence you need to meet the following conditions

  1. The completed home or renovated home becomes your main residence as soon as practicable after it is completed (TD 92/147); and
  2. The home continues to be your main residence for at least 3 months
  3. During the period up to 4 years, no other home can be deemed your principal place of residence for (CGT), however, there is a 6-month overlap, whereby changing main residences both can be treated as the main residence (see – S.118-140), this may create some tax planning opportunities.

Please contact our office if you would like to review your personal situation to ensure your home is not subject to any Capital Gains Tax (CGT) when sold and if audited by the ATO.

6 Year Rule PPOR Absence Rule exemption

If you rent out your principal place of residence that was acquired after the 20th of September 1985, there may be a CGT issue to consider!

Properties purchased before 20th September 1985 will not be subject to CGT regardless if rented out.

If your principal home is rented for the first time before 7.30 pm on 20 August 1996 and purchased after 20th September 1985, the CGT will be calculated on a pro-rata basis (ie) if owned for 30 years and rented for 10 years, 1/3 of the overall gain will be subject to CGT

If however your principal home is rented for the first time after 7.30 pm on 20 August 1996 and purchased after 20th September 1985, the Market Value Substitution Rule will apply S.118-192 of the ITAA 1997, (ie) the property is valued for CGT purposes as its Fair Market Value on the day it was first rented ( you will need a valuation). The CGT is calculated on any increase in value from this point. A further point to note, the 50% CGT discount only applies after 1 year and 1 day after the date of the contract.

In addition, there is the 6-year rule, if you move back into your principal home before 6 years of renting it out, then CGT may be ignored provided you have not elected any other home as your principal place of residence. The ATO only allows one property to be your principal home at a time, the election is indicated by how you lodge your tax return.

Another common mistake is that CGT is calculated from the date of the contract not the date of settlement, some people assume that a sale before the 30th June that settles after the 30th June, pushes the CGT into the following year, unfortunately incorrect.

6 months Rule Moving Between PPOR

The 6-month rule states that where a taxpayer acquires a new dwelling that is to become their main residence, and the taxpayer still owns their existing main residence, both dwellings can be treated as the taxpayer’s main residence for a period of up to 6 months.

Moving in

For CGT purposes, your home qualifies for the main residence exemption from the time you acquire it, provided you move in as soon as practicable.

If you buy your home, the ‘time you acquire it’ is the settlement date of the contract.


  • there is a delay moving in because of illness or other unforeseen circumstances – your home is still exempt, provided you move in as soon as the cause of the delay is removed (for example, when you recover from the illness)
  • you cannot move in because the property is being rented to someone – the property does not become your main residence until you move in
  • you have not yet sold your old home – you can treat both homes as your main residence for up to 6 months.

The 6 months rule for CGT may not be aligned with any State Stamp Duty Concessions, for example, Qld State Stamp

Moving to another main residence

If you acquire a new home before you dispose of your old one, you can treat both as your main residence for up to 6 months.

You can do this if all of the following are true:

  • you lived in your old home as your main residence for a continuous period of at least 3 months in the 12 months before you disposed of it
  • you did not use your old home to produce income (such as rent) in any part of that 12 months when it was not your main residence
  • the new property becomes your main residence.

2 Year Rule PPOR Inheritence Exemption

A client inherited a property from her late parents which was used as their Principal Home. The parent’s family home has been transferred to her as part of the estate. The two year period is now coming due as such she needs to determine what are the capital gains issue if she sells before the 2 years from the date of death is up, or if not what is the apportionment for CGT thereafter.

Full Exemption

Under section 118-195 ITAA 1997, a full exemption can apply on the sale of a dwelling inherited from a deceased individual if the property was the deceased’s main residence just before their death and was not being used to produce income at that time and either:

  • The property is sold within 2 years of the date of death (the Commissioner can extend this period); or
  • The property has been the main residence of the deceased’s spouse, someone granted a right to live in the property under the terms of the deceased’s will or the individual beneficiary who is selling the property from the date of death until the property is sold.

Partial Exemption

The partial exemption rules in sections 118-200 apportion the capital gain based on the number of days that the property was not the main residence of the beneficiary since it was acquired from the deceased if this period is over 2 years

How to calculate the Partial Exemption under CGT

Example: Part exemption

Vicki bought a house under a contract that settled on 12 February 1995 and used it solely as a rental property. When she died on 17 November 1998, the house became the main residence of her beneficiary, Lesley. Lesley sold the property under a contract that was settled on 27 November 2016.

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’s entitled to a partial exemption from CGT.

Vicki owned the house for 1,375 days and Lesley then lived in the house for 6,586 days, a total of 7,961 days. Assuming Lesley made a capital gain of $200,000, the taxable portion is:

$200,000 × (1,375 ÷ 7,961) = $34,544

As Lesley is taken to have acquired the property before 21 September 1999 and entered into the contract to sell it after that time and held the property for at least 12 months, she can use either the indexation or discount method to calculate her capital gain.

If you dispose of your ownership interest in the dwelling within two years of the person’s death, you can ignore the main residence days and total days during your period of ownership.

You ignore any non-main residence days before the deceased’s death if:

  • the dwelling passed to you after 20 August 1996, and
  • just before the deceased died it was their main residence and was not being used to produce income.

The 2 year period is calculated from the date of death to the date of settlement rather than the date of the contract of sale of the deceased parents’ home.

Example: Continuing main residence status

Aldo bought a house in March 1995 and lived in it. He moved into a nursing home in December 2010 and left the house vacant. He chose to treat the house as his main residence after he ceased living in it, under the ‘continuing main residence status after moving out’ rule.

Aldo died in February 2016 and the house was passed to his beneficiary, Con, who used 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 obtain a full exemption for the period Aldo owned it.


  • Con rented out the house and sold it more than two years after Aldo’s death, the capital gain for the period from the date of Aldo’s death until Con sells it is taxable
  • Con sold the house within two years of Aldo’s death, he can ignore the main residence days and total days between Aldo’s death and him selling it, which would give him an exemption for this period
  • Aldo had rented out the house after he stopped living in it he could still have chosen to treat it as his main residence – the house would be treated as his main residence until his death because he would have rented it out for less than six years – in which case Con would still get an exemption for the period Aldo owned the house.

Use the flowchart link to work out if your inherited dwelling is exempt from CGT.

Main residence exemption for foreign residents

If you are a foreign resident, you are not entitled to the main residence exemption from capital gains tax (CGT) for the property sold after 30 June 2020, unless you satisfy the requirements of the life events test.

If you are an Australian resident at the time you dispose of your property this does not affect you.

On this page

Life events test

When you dispose of your residential property, you satisfy the requirements of the life events test if both of the following are true:

  • you were a foreign resident for tax purposes for a continuous period of 6 years or less
  • during that period, one of the following occurred:
    • you, your spouse or your child under 18 had a terminal medical condition
    • your spouse or your child under 18 died
    • the CGT event happened because of a formal agreement following the breakdown of your marriage or relationship.

If you satisfy both these criteria and meet the general requirements for the exemption, you can:

Disposal of property by 30 June 2020

You do not need to apply the life events test to a property that you:

  • acquired before 7.30 pm (Canberra time) on 9 May 2017, and
  • disposed of by 30 June 2020.

You can claim the main residence exemption if you meet both of these requirements in addition to the general requirements for the exemption.

If you were not an Australian resident for tax purposes while living on your property, you are unlikely to meet the requirements for the CGT main residence exemption.

If you dispose of your property under a contract, the disposal time is when you enter into the contract. If there is no contract, the disposal time is when you settle.

Effects on your deceased estate

If you are a foreign resident for tax purposes when you die, these rules also apply to:

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