Yes, if you rented out your home before moving in and making it your main residence, you may need to pay Capital Gains Tax (CGT) on part of the profit when you sell the property.
You won’t be eligible for the full CGT exemption because you didn’t move into the property immediately after settlement, meaning it wasn’t your main residence for the entire ownership period. Instead, you’ll receive a partial exemption, and the capital gain will be reduced based on how long the home was used to earn income (e.g. rented out) before you lived in it.
💡 How is the taxable capital gain calculated?
To work out how much of your gain is taxable, the ATO uses this formula:
Taxable Capital Gain = Total Capital Gain × (Non-Main Residence Days ÷ Total Ownership Days)
Note – This formula does not apply if you moved into the property immediately after settlement and later rented it out for up to six years, as the six-year rule may allow you to claim a full CGT exemption.
✅ Example:
Sarah bought a property on 20 October 2003 and rented it out for the first 3 years. On 21 October 2006, she moved in and lived there as her main residence until she sold it on 9 September 2022.
When Sarah sold the property, she made a total capital gain of $300,000.
To calculate how much of that gain is taxable:
- Non-main residence period = 1,098 days
- Total ownership period = 6,900 days
Taxable Gain = $300,000 × (1,098 ÷ 6,900) = $47,739
Sarah will need to pay CGT on $47,739, not the full $300,000. She may then be able to apply the 50% CGT discount (if eligible) to reduce this taxable amount further.
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