Understanding the rules

With house prices falling in some major capital cities, you may be considering buying a home – either as a first home buyer or otherwise. If so, several important Capital Gains Tax (CGT) rules apply when determining whether your home qualifies for the main residence exemption.

A home only qualifies for the full CGT main residence exemption if it was your home throughout your “ownership period” — from settlement on purchase to settlement on sale.

 

Key CGT considerations

A narrow concession is available if it is “impracticable” to move in at settlement. In this situation, the full exemption can still apply provided you move in as soon as it is “reasonable” or “practicable” to do so. This concession is applied strictly. It does not extend to situations that are merely inconvenient, such as where the purchased property continues to be leased to a tenant. When introduced, the government stated it would generally apply only in cases of serious illness or similar circumstances.

If you already own a home and purchase a new one before selling your existing property, a concession allows you to treat both homes as your CGT‑exempt residence for up to a six‑month overlap period. Important conditions apply, including that your existing home must have been your main residence for at least three months in the 12 months before sale.

 

Timing traps to avoid

Renting out your new home before moving in can reduce your CGT exemption. You will lose part of the exemption on a proportionate basis for the period it is rented first. If you rent it out only after genuinely making it your home, another concession may allow you to retain the exemption.

If you bought the property after 12 May 2026 and rent it out after 30 June 2027, negative gearing will not be available. An exception applies if you purchased a “new residential dwelling”.

 

Changes that may affect your exemption

If you are liable for CGT because you only qualify for a partial exemption, any capital gain relating to the period after 1 July 2027 will generally be subject to the new indexation calculation rules. This method typically provides a smaller tax benefit than the former 50% discount.

 

What this means for home buyers

Buying a home now involves navigating several new rules, especially if your circumstances include delays in moving in, overlapping ownership, or renting the property before occupation. These rules can significantly affect your CGT outcome and your ability to negatively gear the property.

 

Your next steps

If you are thinking of buying a new home — or your first home — it is worthwhile making an appointment with us to discuss how these rules apply to your situation.