Private ruling: CGT - main residence exemption
Date of advice: 2 June 2026
Published: 17 August 2026
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you entitled to a full main residence exemption? | A1: No. | Q2: Are you entitled to a partial main residence exemption? | A2: Yes.

Relevant facts and circumstances: You and your spouse purchased the property. You and your spouse signed the contract. Settlement took place a few weeks after you signed the contract. The property was tenanted when you and your spouse purchased it. The tenants that were in the property when you and your spouse purchased it vacated the property a few months after settlement. The property remained vacant until it was rented out again. New tenants took over the lease later in the year. The main residence you were living in was sold in the following year. The tenants vacated the property. You and your spouse moved into the property. You and your spouse lived in the property as your main residence. You and your spouse treated no other property as your main residence for the same period as the property was your main residence. You and your spouse sold the property. The following circumstances delayed you and your spouse moving into the property: Existing tenancy and COVID-19 restrictions • The property was tenanted at purchase. • COVID-19 tenancy protection laws prevented you and your spouse from requiring the tenants to vacate. • The tenants requested and were granted an extension. Renovation delays due to COVID restrictions • The property required renovation to be suitable for occupation. • Construction work was delayed due to labour shortages and government restrictions. • A construction shutdown occurred. Delay in disposing of prior main residence • You and your spouse intended to sell your existing residence and move into the property. • Environmental events caused structural issues to the existing property. • Repairs and sale were significantly delayed. Temporary rental due to financial necessity • You and your spouse experienced financial hardship holding multiple properties. • The property was rented to mitigate financial pressure. • This was not intended as an investment decision. Actual occupation • After the tenants vacated, you and your spouse moved into the property as soon as practicable. • The property was used continuously as your main residence until its sale.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-135

Reasons for decision: Summary: You make a capital gain or loss because of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss. You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it. Capital gains tax is not a separate tax; it forms part of your assessable income and is taxed at your marginal tax rate. | Detailed Reasoning - CGT main residence: Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income. Section 118-135 of the ITAA 1997 states: If a dwelling becomes your main residence by the time it was first practicable for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence. Section 118-135 was introduced to extend the main residence exemption to take account of the time needed to move into a dwelling. It includes the period from when the taxpayer acquired the main residence to when it was first practicable to move into the dwelling after it was acquired. A dwelling is considered your main residence from the time you acquire your ownership interest in it, provided you move in as soon as practicable after your ownership interest in the dwelling commences. Your ownership interest will generally commence on the date of settlement of the purchase contract. The phrase 'as soon as practicable' is not defined in the legislation. The word 'practicable' is defined in the Macquarie Dictionary to mean: 1. capable of being put into practice, done, or effected, especially with the available means or with reason or prudence; feasible. 2. capable of being used or traversed, or admitting of passage The Explanatory Memorandum to Tax Law Improvement (No.1) Bill 1998 (EM) that introduced section 118-135 states: | Detailed Reasoning - Change: Extend the main residence exemption to take account of the time needed to move into a dwelling, ie. from acquisition until it is first practicable for the individual to move into the dwelling that becomes your main residence. | Detailed Reasoning - Explanation: The rewritten provision takes account of situations where, for example, there is a delay in moving in because of illness or other reasonable cause. The exemption does not extend to cases where an individual is unable to move into the dwelling because it is being rented out. Accordingly, section 118-135 applies in circumstances where a taxpayer is unable to move in due to illness or other reasonable cause outside the taxpayer's control. and does not apply because the dwelling is subject to a lease or where it is merely 'inconvenient' to do so. In Chapman v FC of T (2008) 71 ATR 689, the taxpayer purchased a property in Perth in June 2001, but because he worked in Kalgoorlie and for financial reasons, the property was rented out until he took up residence in September 2003. The AAT held that the words 'the time it was first practicable" in section 118-135 should not be read down to mean" the time it was first convenient' and, in this situation, it was clear that the taxpayer did not move into the residence by the time it was first practicable to do so after the property was acquired. A similar result was achieved in Caller & Anor v FC of T 2009 ATC where the husband and wife purchased a property in 2001 but, as the husband had been transferred 600 kms away for work, they leased it to a tenant until April 2004 when they took occupation of it. They subsequently sold it in 2006 but their claim for the exemption on the basis that they had moved into the property as soon as it was 'first practicable' was denied. The AAT found that it was clear that a period when the property was let out and during which rental income was being derived could not qualify for the exemption. You and your spouse did not move into the property as soon as practicable after you and your spouse purchased it as you purchased the property with tenants. You and your spouse knew the property was tenanted and you were therefore unable to move in. After the tenants moved out the property was left vacant and you then re-rented the property. On the above basis you cannot have a full main residence exemption on the property as the delay in moving in was not out of your control. Whether a dwelling is your main residence depends on the actions of you and your family. Generally, a dwelling is 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. In this sense, your intentions can help to explain your actions or affect the weighting given to certain actions over others. However, your intentions are not a substitute for your actions. In Couch & Anor v Federal Commissioner of Taxation [2009] AATA 41 at paragraph 14, the Tribunal confirmed that the 'mere intention to occupy a dwelling as a sole or principal residence, but without doing so, is insufficient to obtain the exemption.' Where a full exemption is not available, you may be entitled to a partial exemption under section 118-185 of the ITAA 1997. You calculate your capital gain or capital loss as follows: Capital gain or capital loss amount x Total days Non-main residence days / total number of days in your ownership period It is accepted that you and your spouse moved into the property after the second tenants moved out. You and your spouse lived at the property as your main residence up until it was sold. You and your spouse did not treat any other property as your main residence for the above period. You and your spouse are entitled to a partial main residence exemption for the relevant period. Please note that the Commissioner does not have any discretion to allow you and your spouse to have a full main residence exemption on the property from the settlement date to the date it was sold. Section 118-135 of the ITAA 1997 is not a discretion and the Commissioner can only make a ruling on the facts presented to him.