- Most homeowners don’t pay tax when selling their main residence.
Thanks to the main residence exemption, many Australians pay no Capital Gains Tax (CGT) when selling their home, meaning how much tax you pay when you sell a house is often zero. - Capital Gains Tax is the main tax on sale of property.
If exemptions don’t apply, CGT is the primary tax on selling a house, and your taxable gain is added to your income at your marginal rate. - GST on house sale usually doesn’t apply, unless you’re a property developer.
For existing residential properties, GST typically does not apply, but it may apply to new builds or property developers.
Selling your home can feel overwhelming. Beyond the excitement of moving on, there’s the stress of paperwork, finances, and one big question: how much tax do you pay when you sell a house? Some sellers worry about massive Capital Gains Tax (CGT), while others pay nothing at all, leaving many homeowners confused and anxious.
This guide breaks it down simply. You’ll learn exactly what tax on selling a house looks like in Australia, whether GST on house sale applies, how the main residence exemption works, and what happens if you’ve rented out or used your property for business. If your situation is more complex, speaking with a property tax accountant can help clarify your obligations and minimise unexpected liabilities.
Before listing your property, calculate how much tax you pay when you sell a house by reviewing your cost base, ownership period, and eligibility for the main residence exemption. A simple pre-sale review can significantly reduce your tax on sale of property.
Will I pay tax when selling my house in Australia?
In most cases, the answer is none, if the property is your main residence. Thanks to the main residence exemption, many Australians do not pay tax on selling their home. However, in certain situations, Capital Gains Tax may still apply.
Typically, when you sell an asset you must pay capital gains tax (CGT) on any profit made on the sale. Since a home is often the biggest asset most Australians own, it’s natural to wonder whether selling your house means a hefty tax bill.
The good news? In most cases, you won’t pay CGT on the sale of your main residence. Australian tax law provides a main residence exemption that automatically removes the capital gain (or loss) from your tax obligations.
However, it’s not always a blanket exemption. There are situations where some or all of the gain arising on disposal of your main residence may be liable for CGT.
What is Capital Gains Tax (CGT) on property?
When you sell an asset that has increased in value, such as real estate, the profit you make is called a capital gain. This gain is subject to CGT. Capital Gains Tax (CGT) is the primary tax you need to consider when calculating the tax on sale of property in Australia.
Key points:
- CGT is not a separate tax you pay on its own.
- Your net capital gain for the tax year is added to your assessable income.
- This means you pay tax on it as part of your individual tax return at your marginal rate.
The Australian taxation system offers a helpful CGT discount for eligible taxpayers. For example, if you own the property for more than 12 months before selling, you can generally get a 50% discount on the capital gain. This means only half of your profit gets added to your taxable income for the year.
How does the Main Residence Exemption work?
Now for the really good news about gains tax. Most people in Australia do not pay CGT when they sell their home. This is thanks to a provision called the main residence exemption.
If the house you sold was your primary residence for the entire ownership period, you can usually claim a full property exemption from CGT. But what qualifies as a main residence?
The Australian Taxation Office (ATO) has clear guidelines.
Generally, a property is considered your main residence if:
- You and your family live in it for the majority of your time.
- Your personal belongings are kept there.
- It is the address where your mail is delivered.
- It is your address on the electoral roll.
Simply owning land isn’t enough to qualify for the main residence exemption even if you plan to build on it later. However, you can choose to treat the land as your main residence for up to four years before the dwelling is completed.
This option applies if you acquire land and:
- Build a new dwelling on it,
- Repair or renovate an existing dwelling, or
- Complete the construction of a partly built dwelling.
To claim the main residence exemption, you’ll need to meet the following conditions:
- The building, repair, or renovation must be finished.
- You must move into the dwelling as soon as practicable once it’s complete.
- You must live in it as your main residence for at least three months.
Can you claim more than one Main Residence?
You can typically only claim one property as your main residence at any given time. This powerful exemption is why so many home sales in Australia are tax-free. When this full exemption applies, you do not even need to report the sale on your tax return.
However, there is one exception. If you’re selling your old home and buying another. In this situation, you’re allowed an overlap period of up to six months where both properties can be treated as your main residence, provided that:
- The new property becomes your main residence after the sale of the old one,
- You lived in the old property for at least three continuous months in the 12 months before selling, and
- The old property was not rented out at any time during the 12-month period; it wasn’t your main residence.
What if I can no longer live in my main residence?
The main residence exemption can still apply if the owner is no longer able to live in the home because they have lost the ability to live independently and require full-time care. This means that property owners who spend an extended period in a hospital or residential care facility are still eligible for the main residence exemption when they sell the property to pay living and medical expenses.
When the Main Residence Exemption doesn’t apply (and you have to pay CGT)
Things get more detailed if your situation is not as simple as selling the family home. In some cases, you might only get a partial exemption, or none at all. This often happens if you have used your home to produce income.
1. Using your home to make money
Did you run a business from home?
- If you used part of your house exclusively as a place of business, you might have to pay some CGT.
- You may also have claimed a tax deduction for interest on your home loan or other property expenses.
If this applies to you, you likely cannot claim the full main residence exempt status.
- You will need to calculate the portion of the property used for business purposes.
- The capital gain will then be split between your private use and business use areas.
For example, if 20% of your home’s floor area was used for your business, you would likely have to pay capital gains tax on 20% of your capital gain. The other 80% would still be covered by the main residence exemption. This is a common scenario for many small business owners.
2. Renting out your former home
Life changes, and sometimes you need to move out of your home without selling it straight away. Perhaps you moved for work or decided to travel. If you turned your home into a rental property during this time, you can often still use the exemption.
This is where the six-year rule is helpful.
- The 6-year rule lets you treat the dwelling as your main residence for up to six years after you stop living in it, as long as it’s being used to generate income.
- The best part is that you can get the full CGT exemption for this period if you sell within that timeframe.
There is one significant condition. You cannot claim any other property as your main residence during that same time. The six-year period also resets every time you move back into the property, making it a flexible rule for property owners.
3. When a property was first a rental
What if you bought a place as an investment property and then moved into it later? In this situation, you cannot claim a full main residence exemption. The rules are different because the property was first used to produce income.
When you eventually sell, you will have a partial CGT liability. The taxation office considers the number of days it was a rental compared to the number of days it was your main residence. This calculation determines the taxable portion of your capital gain.
Your cost base for the property is also reset to its market value on the day you first moved in. This can be a complex area of Australian taxation. Getting this valuation right is important to avoid overpaying tax when you sell.
Because partial exemptions and CGT calculations can become complex, many homeowners consult a property tax accountant to ensure they calculate their liability correctly.
3 special situations where you may still pay tax when selling a house
Beyond the common scenarios, there are special situations where tax on selling a house may still apply, even if you expected a full exemption. These include your residency status, how you acquired the property, and your intentions for the real estate.
1. Selling as a foreign resident
From 1 July 2020, most individuals who are non-residents for tax purposes at the time they sell their home (that is by the date of the sale contract, not settlement) are no longer eligible for the main residence exemption.
However, the main residence exemption may still be available to taxpayers who have been non-residents for tax purposes for six years or less at the time of sale and the sale was triggered by specific “life events”, such as:
- You, your spouse, or a child under 18 had a terminal medical condition (certified by two medical practitioners that the illness will likely result in death within 24 months of this certification).
- Your spouse or child under 18 passes away.
- The sale occurs as part of a property settlement under divorce, separation, or similar court orders (e.g. Family Law Act 1975).
Key points:
- There are no partial exemptions for foreign residents. If you’re a non-resident at the time of sale and don’t meet the life event rules, you cannot claim any exemption, even if you lived in the home as your main residence for many years.
- This can lead to a very harsh outcome, as the entire capital gain may become taxable.
- However, if you return to Australia and re-establish tax residency before signing the sale contract, you can still qualify for the exemption, and your period overseas as a non-resident will be disregarded.
2. Selling an inherited property
The tax implications of selling an inherited property are different again.
- If you inherit a property that was the deceased’s main residence and you sell it within two years, you may be fully exempt from CGT.
- The specific conditions depend on when the deceased acquired the property.
- If you hold onto the property for longer than two years or rent it out, partial CGT may apply.
- The cost base of an inherited property is typically its market value at the date of the person’s death.
This is one of many areas where the correct advice from a tax professional is invaluable.
3. Selling as a property developer
If you are a property developer or your activities amount to a business of buying and selling property, the tax treatment is completely different.
- The sale is not treated as a capital gain.
- Instead, the profit is considered regular business income and is taxed at your marginal tax rate, with no CGT discount available.
- Furthermore, GST on house sale generally applies to new residential properties sold by a property developer.
This is a highly specialised area of property tax, and professional advice is essential. The Australian Taxation Office has strict guidelines for these cases.
The biggest mistake sellers make is assuming there’s automatically a large tax on selling house. In reality, most homeowners pay no CGT but small details like renting out a room or running a business from home can change how much tax you pay when you sell a house.
How to calculate capital gains or loss on your property
If you find that you do have to pay capital gains, the next step is calculating the amount. The process involves working out your capital proceeds and subtracting your cost base. The result determines how much tax you pay when you sell a house, if CGT applies.
Step 1: Calculating your ‘Cost Base’
The cost base is not just the purchase price of the house. It is a collection of all the costs associated with buying, holding, and selling the property. A higher cost base means a smaller capital gain, which leads to less tax to pay capital.
Elements that property include in your cost base are:
- The original purchase price you paid.
- Stamp duty on the purchase.
- Legal and conveyancing fees for both buying and selling.
- Valuation fees and surveyor costs.
- The real estate agent’s commission on the sale.
- Costs of major property improvements, like a new kitchen or an extension.
It is important to keep good records of all these expenses throughout your ownership. While you might use personal loans or credit cards to fund property improvements, it’s the cost of the improvement itself, not any interest on the loan, that gets added to your cost base. Regular maintenance, like repainting a room, cannot be included.
Step 2: The final calculation
Once you have your cost base, the calculation is simple. You take your capital proceeds (the selling price) and subtract the cost base. If the number is positive, you have a capital gain.
Let’s review a basic example. Imagine you bought a property for $400,000, and your associated costs (stamp duty, legal fees) totalled $30,000. You sell it years later for $700,000, paying $15,000 in the estate agent’s and legal fees.
|
Calculation element |
Amount |
|---|---|
|
Capital proceeds (Sale price) |
$700,000 |
|
Purchase price |
$400,000 |
|
Buying & selling costs |
$45,000 |
|
Total cost base |
$445,000 |
|
Gross capital gain |
$255,000 |
|
Less 50% CGT discount |
-$127,500 |
|
Taxable capital gain |
$127,500 |
In this scenario, $127,500 would be added to your assessable income for that tax year. This is a very simplified example. Your own situation might involve partial exemptions or other factors that change the numbers before you pay CGT.
What happens if you make a capital loss on your investment property
Not every property sale results in a profit. If you sell your investment property for less than you originally paid (including purchase costs), the difference is considered a capital loss.
The good news is that a capital loss isn’t wasted:
- You can use it to offset other capital gains in the same financial year, reducing your overall tax bill.
- If your losses exceed your gains, you can carry them forward to future years and apply them against future profits.
This ensures you still get some tax relief, even if the property sale itself didn’t work out as planned.
Do you pay stamp duty when selling a house in Australia?
You probably remember paying stamp duty when you bought your home. It is a significant upfront cost. But the good news is that stamp duty is a buyer’s responsibility.
When you sell a property in Australia, you do not pay stamp duty. It is purely a tax levied by state and territory governments on the person or entity purchasing the property.
Does GST apply on house sale in Australia?
Many homeowners ask whether GST on house sale applies. In most cases, it does not.
However, there are some exceptions, as mentioned earlier, which are more likely to affect business owners or developers. But for the average homeowner selling their family home, a GST-free sale is standard. The property is generally exempt from this tax.
Conclusion
For most homeowners in Australia, understanding how much tax you pay when you sell a house is simpler than expected. Thanks to the main residence exemption, you probably will not have to pay capital gains tax at all. But your personal circumstances are what truly matter.
If you have used your home to earn income by running a business or renting it out, the rules become more involved. Understanding provisions like the six-year rule and how to calculate a partial exemption is important, as many exemptions apply in different cases. Knowing exactly what taxes to pay when selling a house means keeping more of your hard-earned money.
Because specific fees apply and tax laws can be difficult, always consider talking to a tax professional to get advice specific to you. This helps ensure you meet your obligations to the taxation office and do not pay a cent more in tax than you need to. Remember, a quick consultation can save you thousands in the long run.
If your situation involves partial exemptions, rental periods, or business use, speak to a property tax accountant before signing the contract. Correct planning can legally minimise your tax on selling house and avoid costly surprises later.
How Sleek can help with property taxes
Selling property comes with complex tax rules, from CGT exemptions to cost base calculations. Sleek’s property accountants make it simple:
- Get expert property tax advice: Selling your home or investment property? Get expert property guidance through CGT rules and exemptions so you don’t pay more than you should.
- Complete compliance support: From reporting rental income to applying the six-year rule, our accountants ensure your property tax return is accurate and ATO-compliant.
- All inclusive accounting: End-to-end accounting support covering tax returns, bookkeeping, payroll, and maintaining your accounts, everything you need to keep your property finances in order.
- Stress-free tax time: Never miss a deadline again. We prepare and lodge your tax returns on time, helping you avoid penalties and unnecessary stress.
Ready to simplify your property taxes? Talk to a Sleek property accountant today.
Fill in your contact details and we will get back to you asap.
450,000
businesses worldwide.
from 4,100+ reviews.
satisfaction rate from
16,000 surveyed clients.
Frequently Asked Questions
How much tax do you pay when you sell a house in Australia?
In most cases, you pay no tax when selling your main residence due to the main residence exemption. However, if the property was rented out, used for business, or does not qualify for the exemption, Capital Gains Tax (CGT) may apply.
Does GST apply on house sale in Australia?
GST on house sale generally does not apply to existing residential properties. However, GST may apply if you are selling a new residential property or operating as a property developer.
Do I have to report the sale of my home on my tax return?
If your home qualifies for the full main residence exemption, you don’t need to report the sale. If you only get a partial exemption (e.g. business use or rental periods), you must calculate the taxable portion of the gain and include it in your return.
