Using your home for rental or business

Check if your CGT main residence exemption is affected if you earn assessable income from your home.

Last updated 19 November 2025

How it works

Your main residence (your home) is exempt from capital gains tax (CGT) if you are an Australian resident.

You’re not entitled to the full main residence exemption from CGT if you rent out part of your home or run a business from home. However, you may be entitled to a partial main residence exemption.

When you sell your home, the part you used to earn assessable income (for rental or to run a business) is subject to CGT.

You can usually claim income tax deductions for the part of your home used to produce assessable income.

To work out your capital gain or loss, you consider:

the floor area used as a rental or to run a business, including through the sharing economy
the period you used it for this purpose
whether you first started using your home for rental or business after 20 August 1996.

If you're a foreign resident when a CGT event happens to your residential property in Australia (for example, you sell it), generally you aren't entitled to claim the main residence exemption. For more information, see Main residence exemption for foreign residents.

Check if CGT applies

To work out if CGT applies, you need to determine if you would be allowed a deduction for your home loan interest if you had borrowed money to acquire your home. This is the ‘interest deductibility test’. The interest deductibility test must be applied even if you haven't borrowed money to acquire your home.

If you are or would be eligible to claim part of the interest expense, your home is subject to CGT to the same extent.

If you have a home loan, you can’t:

reduce the capital gain by not claiming a deduction for some or all of the interest
increase the cost base of your home by the amount of interest you choose not to claim as a deduction.

You can still get a full main residence exemption if someone else uses part of your home to produce assessable income and you don't receive assessable income from that person for the use of the property.

To help work out if you need to consider CGT, check the scenarios in Capital gains tax and the main residence exemption.

Renting out part of your home

If you rent out part of your home for a period:

You can claim a deduction for the home loan interest related to the portion of your home that is rented out.
The capital gain (or loss) for that portion of your home during the rental period would be assessable – (for example, the floor area used by tenants).

Running a business from home

You're running a business from home if it’s your principal place of business and you have space set aside just for this purpose. Merely working from home occasionally or by choice doesn’t qualify.

You're only eligible for the full main residence exemption if you’re not entitled to claim a deduction for interest expenses.

You’re entitled to claim a deduction for part of any home loan interest if:

part of your home is set aside exclusively as a place of business and is clearly identifiable as such
that part of the home isn’t readily adaptable for private use – for example, a doctor's surgery located in a doctor's home.

You’re not entitled to claim a deduction for interest expenses if you:

use a home study to do work usually done at your place of work
do paid child-minding at home (unless part of your home is set aside exclusively for that purpose).

If you’re not entitled to a full main residence exemption because you use your home for business purposes, you may be able to apply the small business CGT concessions to reduce your capital gain.

Work out your capital gain or loss

You can use the CGT property exemption tool to calculate the portion of your home that is subject to CGT.

Alternatively, you can work out the assessable part of your capital gain or loss as follows:

Step 1: Work out the capital gain or loss on your home based on its value when you first used it to produce assessable income.

There are exceptions if you first used your home to produce assessable income before 21 August 1996 or inherited your home. For more information see Value of home when first used to produce income.

Step 2: Determine the portion of your home's floor area that you set aside to produce assessable income.

Step 3: Multiply steps 1 and 2. If you:

used your home to produce assessable income right up to when you sold it, this is your assessable capital gain or loss – you don’t need to continue
stopped using your home to produce assessable income before you sold it – continue to step 4.

Step 4: Determine the number of days you used your home to produce assessable income.

Step 5: Determine the number of days from the date you first used your home to produce assessable income until you sold it.

Step 6: Your net capital gain is step 3 × (step 4 ÷ step 5).

Example: part of home rented throughout ownership period

Thomas bought a house on 1 July 2002 for $300,000. He sold it on 30 June 2025 for $700,000. The house was his main residence for the entire time.

Throughout the period Thomas owned the house a tenant rented one bedroom, which represented 20% of the house.

Both Thomas and the tenant used the living room, bathroom, laundry and kitchen, which represented 30% of the house.

Only Thomas used the remainder of the house. This means Thomas is entitled to a 35% deduction (20% + [30% × 50%]) for home loan interest (if he incurred it).

Using steps 1 to 6 Thomas works out his net capital gain as follows.

Thomas used his home to produce assessable income from the time he acquired it. Therefore, he uses its initial value to work out his capital gain:
$700,000 − $300,000 = $400,000.
The portion of the floor area set aside for rental is 35%.
Thomas' net capital gain is $400,000 × 35% = $140,000. As he used his home to earn assessable income right up to when he sold it, he doesn’t need to apportion his net capital gain for any period it wasn’t used to produce assessable income.

As Thomas owned his house for at least 12 months he can use the CGT discount (50% for individuals) to reduce his capital gain.

Thomas's net capital gain would be $70,000.

End of example

Example: part of home used for business for part of ownership period

Fatima bought a house in December 1997 for $200,000. It was her main residence.

On 1 November 2017 she started to use 40% of the house for a consultancy business. At that time the market value of the house was $520,000.
On 1 August 2021 she shifted her consultancy practice to separate business premises and used her home solely for private purposes.
On 1 May 2025 she sold her house for $620,000.

Using the steps 1 to 6, Fatima works out her net capital gain as follows:

Her capital gain based on the value of her home when she first used it to produce assessable income is $620,000 − $520,000 = $100,000.
The portion of her home's floor area set aside for business was 40%.
$100,000 × 40% = $40,000. As Fatima stopped using her home for business before she sold it, she continues to step 4.
Fatima used her home to produce assessable income from 1 November 2017 to 1 August 2021, a total of 1,370 days.
The period from when she first used her home to produce assessable income until she sold it is 2,739 days (1 November 2017 to 1 May 2025).
Fatima's net capital gain is $40,000 × (1,370 ÷ 2,739) = $20,007.

For CGT purposes, Fatima is treated as if she acquired the house on 1 November 2017. This is more than 12 months before she sold it, so she can use the CGT discount (50% for individuals) to reduce her capital gain.

Fatima's net capital gain would be $10,003.

End of example

Value of home when first used to produce income

If you use your home to produce assessable income you are generally taken to have acquired it at the time you first used it for this purpose.

This means when you sell your home, you need to use the 'home first used to produce income rule'. You do this by working out the capital gain or loss using its market value at the time you first used it to produce assessable income.

If you sell your home within 12 months of when you first use it to produce assessable income, you can’t use the CGT discount.

Market valuation

You must get a market valuation of your home when you first start using it for rental or business, if this was after 20 August 1996.

You need to know this value to calculate your capital gain or loss when you sell it.

Exclusions to the 'home first used to produce income rule'

The 'home first used to produce income rule' doesn't apply if you:

use your home to produce assessable income from the time you acquire it, the rule doesn’t affect you – for an example, see Rental property becomes your main residence
inherit a dwelling that was a deceased’s main residence – the rule doesn’t apply when you sell the dwelling within 2 years
choose to continue treating a property as your main residence after you move out – when the property is fully exempt, the rule doesn’t apply
don't meet the criteria for a partial main residence exemption, – for example, you either
- were a foreign resident when you sold the property
- claimed the exemption for another property for the period you lived there.

Example: 'home first used to produce income rule' does not apply

Peter bought a house on 1 October 2012 for $550,000. He rented it out until 30 June 2015.

Peter moved into the house on 1 July 2015 and lived in it for the entire period until it was sold on 30 March 2025 for $780,000.

The ‘home first used to produce income rule’ doesn’t apply as the house was rented from the time Peter bought it. This means that Peter isn’t required to use the market value of the house at the time it was first used to produce assessable income.

Peter works out the capital gain based on the cost base of $550,000. Peter is entitled to the main residence exemption from 1 July 2015 to 30 March 2025 (3,561 days).

The assessable part of Peter’s capital gain will be calculated as follows:

Capital gain for the entire period is $780,000 − $550,000 = $230,000
Peter’s home was rented out for 1,003 days (1 October 2012 to 30 June 2015)
Peter’s total period of ownership was 4,564 days.
Capital gain for the period that was rented out is $230,000 × (1,003 ÷ 4,564) = $50,545.

Peter is entitled to the CGT discount of 50% which will reduce his capital gain.

Peter’s net capital gain would be $25,272.

End of example

When the rule applies

Apart from these exclusions, the rule applies if all the following are true:

you acquired the property on or after 20 September 1985
you first used the property to produce assessable income after 20 August 1996
when you sell the property (or another CGT event happens to it), you would be entitled to a partial CGT exemption because you used it to produce assessable income during the time you owned it
you would have been entitled to a full exemption if the sale or other CGT event happened to the property immediately before you first used it to produce assessable income.

Example: home becomes a rental property

Erin bought a house 25 July 2013 for $450,000. The house was her main residence until she moved into a new house on 1 August 2024.

On 2 August 2024 she began renting out the old house. At that time, the market value of the old house was $650,000.

Erin didn’t want to treat the old house as her main residence under the ‘continuing main residence status after moving out’ option. She wanted the new house to be treated as her main residence from the date she moved into it.

On 10 June 2025 Erin sold the old house for $696,000. As Erin is deemed to have acquired the old house for $650,000 on 2 August 2024, she calculates her capital gain to be $46,000. She can’t use the CGT discount to reduce her capital gain as she is taken to have owned it for less than 12 months.

End of example

Media: Selling a rental property that was your home
https://tv.ato.gov.au/ato-tv/media?v=bd1bdiubfs6pgqExternal Link (Duration: 3:17)

Rental property becomes your main residence

If your rental property becomes your main residence, your eligibility for a main residence exemption is limited to the period you lived in the property. For the period the property was rented out, you will be liable for CGT when you sell the property.

Use the following formula to work out your CGT when you sell your property:

Capital gain or loss × (number of days the property was used to produce assessable income ÷ total number of days you owned the property)

The total number of days you owned the property is calculated using the contract purchase and sale dates, not settlement dates.

You can also use the Capital gains tax property exemption tool to work out what percentage of your capital gain is exempt from capital gains tax (CGT).

Example: rental property becomes your home

Farnaz entered into a contract to purchase a property on 21 October 2018 for $449,000. She immediately rented out the property.

The property was rented for 2 years, until Farnaz moved into the property on 16 November 2020. Farnaz lived in the property as her main residence until she signed a contract to sell her home on 1 April 2025 for $987,500.

Farnaz works out her net capital gain as follows:

Capital gain is $538,500 (worked out as $987,500 − $449,000)
Number of days owned is 2,355 (21 October 2018 to 1 April 2025)
Number of days the property was used to produce assessable income is 757 (21 October 2018 to 15 November 2020)
Assessable capital gain is $538,500 × (757 ÷ 2,355) = $173,097
Net capital gain after applying the 50% CGT discount for owning the property for over 12 months is $86,548 (worked out as $173,097 × 50%)

Farnaz includes a net capital gain of $86,548 in her 2025 tax return.

End of example

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