Your main residence is generally exempt from capital gains tax (CGT) when you sell it. But when you separate and one party moves out, the rules change. The absence rule may allow the person who moved out to keep the exemption, but it depends on your circumstances. This is general information only. Always seek professional tax advice for your specific situation.
The main residence exemption
If the family home is your main residence and has been for the entire period you have owned it, any capital gain you make when selling it is generally tax free. This is the main residence exemption under Australian tax law. It applies automatically when you sell the home you have been living in.
During separation, the complication arises when one party moves out. At that point, the property may no longer be that person's main residence. If you are considering whether you can keep the family home, the CGT implications are an important part of the decision.
The absence rule (often called the six year rule)
Under section 118-145 of the Income Tax Assessment Act 1997, if you move out of your main residence you can choose to keep treating it as your main residence for CGT purposes, provided you do not treat another property as your main residence during that period. How long depends on how the home is used after you leave:
- If it is not used to produce income (for example, your ex and the children keep living there and no rent is paid), there is no time limit.
- If it is rented out or otherwise used to produce income, the limit is up to six years for each period of absence. This is why it is often called the six year rule.
The catch is the choice itself: while you treat the former home as your main residence, you cannot treat a new home you buy as your main residence (apart from a short overlap of up to six months when moving). Source: Australian Taxation Office, checked October 2026.
In a separation context, this means the party who moves out may be able to maintain the CGT exemption on the family home after leaving - with no time limit if it is not rented out, or for up to six years if it is. If the property is sold or transferred while the exemption still applies, and no other property has been claimed as their main residence, the exemption may still apply.
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Book a confidential chatHow separation timelines interact with CGT
Property settlements can take months or years to finalise. If you moved out of the family home when you separated and your ex and the children stayed on without paying rent, a long settlement does not by itself use up the exemption. If the home was rented out while the settlement dragged on, the six year limit can matter. Buying a new home before the old one is transferred or sold can also force a choice about which property is your main residence, so the timing matters. You need to be aware of the time limits for property claims as these can interact with your CGT position.
Transfers between spouses or former spouses under a court order or BFA may have CGT rollover relief, meaning the transfer itself does not trigger a CGT event. But the receiving party takes on the original cost base, which affects their future CGT position if they later sell the property.
When CGT does apply
CGT may apply if: the property was not your main residence for the entire ownership period, the property was rented out for more than six years after you moved out, you have chosen another property as your main residence, or the property was used to produce income (such as renting it out) during a period when the absence rule did not cover it. The stamp duty exemption in your state is a separate matter from CGT and has its own conditions.
If you are using the keep or sell calculator to decide whether to hold the property, factor in the potential CGT liability as part of the true cost of keeping it long term.
Get professional tax advice
CGT rules are complex and fact specific. The information above is general in nature. Your tax position depends on your ownership history, the dates you lived in the property, whether it was ever rented, and the terms of your settlement agreement. A qualified tax adviser or accountant should review your specific circumstances before you make decisions about selling, transferring, or retaining the family home.
