If you're wondering how long you need to live in a property to avoid capital gains tax, or whether a rental can escape it, the answer depends on how you've used it. 

If the property has only ever been a rental and you bought it on or after 20 September 1985, no exemption generally applies, so you'll pay capital gains tax (CGT) on any net gain left after the rules below. 

But some sales are fully or partly exempt, mostly where the property was your home at some point or you inherited it. And there are legitimate ways to make sure you don't pay more than you owe.

Here's what you need to know:

• There's no minimum time you have to live in a home for it to count as your main residence, but the exemption generally only covers the time it was your home.
• A former home you've rented out can stay exempt for up to six years, if you choose to keep treating it as your main residence and don't treat another home as your main residence in that time.
• An inherited home can be fully exempt, usually if it was the owner's home when they died and the sale settles within two years.
• For a rental, the 50 per cent discount is the main way the tax comes down. It depends on owning the property for at least 12 months, not living in it.
• From 1 July 2027 the discount changes for gains made after that date, following the 2026 Federal Budget. The main residence exemption isn't changing.

Which situation are you in?

How long do you need to live in a house to avoid capital gains tax in Australia?

There's no set minimum time you have to live in a house to avoid capital gains tax. The ATO says there is "no minimum time" a person has to live in a home before it counts as their main residence. But the exemption generally only covers the time it was your home, so living in a rental briefly usually exempts only that part of the gain.

How long you lived there is one thing the ATO weighs, but it isn't a test on its own. It looks at whether the place was genuinely your home, including:

• whether your family lived there with you
• whether you moved your belongings in
• whether you used it as your address for mail and on the electoral roll
• whether services such as electricity were connected
• what you intended

Intending to live there isn't enough on its own. You need to have actually moved in. And if you bought a property to renovate and sell at a profit, that can stop it qualifying in full, and the profit may even be taxed as ordinary income.

A home is usually fully exempt if it was your main residence for the whole time you owned it, you didn't use it to earn income, the land is 2 hectares or less, and you're not a foreign resident when you sell. If it was your home for only part of that time, you'll usually get a partial exemption. 

The same applies if you rented out part of your home, such as a room, or ran a business from it: part of the gain can be taxable, based on the floor area used and for how long. If you moved out and rented it, you may still be able to treat it as your home for up to six years, which is explained in the next section.

If you buy a new home before selling the old one, both can be treated as your main residence for up to six months. To qualify, the new property has to become your home, and you need to have lived in the old one for at least three months in a row in the year before you sell it. The old home also can't have been used to earn income, such as rent, during any part of that year when you weren't living there.

If you're thinking of 12 months, that's a different rule. Owning a rental for at least 12 months is what qualifies you for the 50 per cent discount (more on that below).

What is the six-year rule for capital gains tax?

The six-year rule lets you keep treating your former home as your main residence for up to six years while it's rented out, so the sale can still be fully exempt from capital gains tax, as long as you don't treat another home as your main residence in that time. If you don't rent it out, there's no time limit. It's a choice you make, and it has conditions:

• It must have been your home first. The rule can't cover a period before you moved in, so it doesn't help with a property you've only ever rented out.
• You don't need a particular reason for moving out, such as work or travel.
• You generally can't treat another property as your main residence at the same time, apart from the six months' overlap when you move. If you buy a home where you now live, you'll generally have to choose which one is your main residence for that period.
• Only the time it's rented, or available for rent, counts towards the six years, and those periods don't have to be continuous. If you genuinely move back in and make it your home again, a new six-year period can start when you next move out.
• You make the choice in your tax return for the year you sign the sale contract. You still report the sale in that return.

An example

This is a made-up example to show how the rule can work. It isn't tax advice.

Alex bought a unit, moved in straight away and lived there for 10 months. Then they moved interstate for work and rented the unit out. They rent where they now live and haven't bought another home. 

If Alex sells within six years of first renting the unit out, chooses to keep treating it as their main residence, and is an Australian resident when they sell, the sale can be fully exempt. If they rent it out for longer than six years, part of the gain becomes taxable. And if Alex buys a home interstate and treats that as their main residence, the unit stops being covered from then on.

Now say Alex rents the unit out for eight years instead. A valuer put it at $600,000 when it was first rented, and Alex signs a contract to sell it for $760,000 in 2026–27. Leaving out buying and selling costs, the gain since it was first rented is $160,000. 

Six of the eight rented years are covered by the six-year rule, so about two-eighths of that gain, $40,000, is taxable. Alex has owned the unit for more than 12 months, so under the current rules about $20,000 is added to their taxable income for the year as a net capital gain. The exact days and costs would change the figure.

The ATO says to get a valuation when you first rent your home out. If you rent it out for more than six years, part of the gain is taxable. If you first rented it out after 20 August 1996, and you'd have been fully exempt until then, its market value at that time generally becomes its cost for working out the taxable part. The valuation is what lets you work that out later.

If you're a foreign resident when you sign the sale contract, you generally can't use the main residence exemption at all. There's a limited exception if you've been a foreign resident for six years or less. During that time, you, your spouse or your child under 18 must have had a terminal illness, or your spouse or child under 18 died, or the sale happened because of a formal agreement after your relationship broke down.

If you're an Australian resident, you'll generally still need a clearance certificate from the ATO before settlement, even if your sale is exempt. Without one, the buyer must generally hold back 15 per cent of the price.

How to avoid capital gains tax on inherited property

An inherited home is generally free of capital gains tax if it was the owner's main residence when they died and the sale settles within two years. If you've just lost a parent or partner, tax may be the last thing on your mind, so here are the main conditions. If you're a beneficiary or the estate's trustee, the sale is generally fully exempt if:

• the person who died acquired it on or after 20 September 1985
• it was their main residence just before they died, and wasn't being rented out or used to earn income at that time
• the sale settles within two years of their death (for this rule it's the settlement date that counts, not the contract date)

Within those two years, it doesn't matter whether you live in the property or rent it out. If the estate needs longer, the ATO can extend the two years in some circumstances, such as a challenge to the will or a sale that falls through for reasons outside your control. Waiting for the market to improve generally isn't enough.

If the first two conditions are met, the sale can also be fully exempt whenever it happens, as long as from the date of death until the sale the property wasn't used to earn income and was the main residence of:

• the spouse of the person who died (unless they had permanently separated), or
• someone with a right to live there under the will, or
• you, if you're the beneficiary selling it

If the person who died acquired the home before 20 September 1985, it doesn't matter whether it was their home or a rental. The sale is generally fully exempt if it settles within two years of their death, or if, from the date of death until the sale, it wasn't used to earn income and was the main residence of one of the people above.

Different rules apply if the person who died had been a foreign resident for more than six years, or if you're a foreign resident when you sell. The ATO's inherited property page walks through each case.

How can I reduce the CGT on a rental property?

If the property has only ever been a rental, no exemption generally applies, but the main things that bring the taxable gain down are the 50 per cent discount, every cost in your cost base, and capital losses. Our guide to tax on selling an investment property shows how the tax is worked out, with an example.

The 12-month rule

Under the current rules, if you've owned the property for at least 12 months and you're an Australian resident, only half your capital gain is taxed. Time as a foreign or temporary resident while you owned it can reduce the discount, and if you bought before 21 September 1999 and sign before 1 July 2027, an older method may be available instead. 

The 12 months runs from the date of the contract to buy to the date of the contract to sell, not counting either day. A rental sold within a year of buying it has the whole gain taxed. One exception: if a former home was first rented out less than 12 months before you sell, any part of the gain that's taxable because it was rented generally can't get the discount.

Every cost you're entitled to count

Your gain is the sale price less the property's cost base, which is what the property has cost you in total. Every cost that belongs in it lowers the gain. That includes:

• the purchase price
• stamp duty and legal fees when you bought
• your agent's commission, advertising and legal fees when you sell
• money spent improving the property, such as a renovation or extension

You can't include anything you've claimed, or could have claimed, as a tax deduction, such as interest and repairs. And deductions for the cost of the building itself (capital works deductions) generally come off the cost base, which increases the gain. Keeping the receipts and contracts is what lets you count these costs, and the ATO says to keep them for at least five years after the sale.

Capital losses

If you've made a capital loss, for example by selling shares for less than you paid, it reduces your capital gain. Capital losses can't reduce your other income, such as wages, but any you can't use carry forward with no time limit. Under the current rules, they come off before the 50 per cent discount is applied, and the ATO says applying them first to gains that don't get the discount gives the lowest tax.

You can work out your net capital gain with the ATO's CGT record keeping tool, which applies the method that gives the smallest result. It doesn't yet cover the rules that start on 1 July 2027, or inherited property.

Personal super contributions

You can put your own money into super and claim it as a tax deduction, which lowers your taxable income for the financial year your fund receives it. It doesn't reduce the capital gain itself. If that's the year you sell, it's worth asking your tax agent how it works with your gain, particularly from 1 July 2027, because the new minimum tax (explained below) is worked out on the part of the gain made from that date, and a top-up may reduce the saving. The main limits:

• It counts towards your concessional cap, which is $32,500 in 2026–27 and includes your employer's contributions.
• Your fund taxes the contribution at 15 per cent.
• You must send your fund a notice of intent, and have it acknowledged, before you lodge your return for that year (or by the end of the following financial year, if that's earlier), and before you withdraw the money, roll it over or start a pension with it.
• Money in super generally can't be withdrawn until you meet a condition of release, such as retiring after your preservation age.

Other conditions apply, including a work test from age 67, a rule that the deduction can't create a tax loss, and an extra tax for higher incomes. Our guide on selling an investment property to put into super explains them.

Small business concessions

There are special CGT concessions for small businesses, but they generally don't apply to a rental property. An asset that's mainly used to earn rent doesn't count as an active asset of a business.

Do the 2027 changes affect these exemptions?

The main residence exemption isn't changing. For contracts signed from 1 July 2027, the 50 per cent discount no longer applies to the part of a gain made after that date, and property bought before 20 September 1985 starts being taxed on gains made from then. 

These changes come from the 2026 Federal Budget. The first stage became law in June 2026, some details are still being settled, and nothing changes for contracts signed before 1 July 2027. For contracts signed from that date:

The gain still goes in the tax return for the financial year you sign the contract, at that year's rates. Our guide to tax on selling an investment property explains how the split at 1 July 2027 works, and has a worked example of the tax under current rates.

Questions to work through with your tax agent

• Was the property ever your home? If so, for which dates, and was it rented out while you were away?
• Have you treated another property as your main residence since you moved out?
• Will you sell within six years of first renting it out?
• Did you first rent it out after 20 August 1996? If so, do you have a valuation from that time?
• Was it inherited? If so, when did the owner die, when did they acquire it, and was it rented out when they died?
• What's the full cost base? Gather the purchase contract, stamp duty, legal fees, improvement costs and selling costs.
• Do you have capital losses from this year or earlier years?
• When will the contract be signed, and will you still own the property on 1 July 2027?

Where to check the details

The rules above come from these official sources:

• Guide to capital gains tax 2026: real estate and main residence (ATO)
• Eligibility for the main residence exemption (ATO)
• Treating a former home as your main residence (ATO)
• CGT property exemption tool (ATO)
• CGT discount (ATO)
• Using capital losses to reduce capital gains (ATO)
• Personal super contributions (ATO)
• Capital gains tax reform (ATO)