Key Highlights

  • Many Australians run a business from a spare room or take in a lodger to help with the mortgage.
  • The government's Budget explainer is clear that "the main residence remains exempt from CGT".
  • Losing part of the exemption is not new.
  • The usual approach is to apportion the gain by the share of floor area used to earn income and the length of time it was used that way.

Many Australians run a business from a spare room or take in a lodger to help with the mortgage. With self-lodger returns due by 31 October and Parliament back from 12 October, the effect of those arrangements on the main residence exemption is getting fresh attention. The exemption itself comes through the 2027 capital gains tax overhaul unchanged. What changes is how tax is worked out on any part of a home that isn't exempt.

The exemption stays, but partial use was never fully exempt

The government's Budget explainer is clear that "the main residence remains exempt from CGT". The Tax Reform No. 1 Act 2026 is now law. From 1 July 2027 it replaces the 50% CGT discount for individuals with indexation of the cost base and a 30% minimum tax on gains accruing from that date.

Losing part of the exemption is not new. Under long-standing rules, if part of a home is used to produce assessable income, part of the eventual gain can be taxable. Renting a room to a tenant is one example. Running a business from an area set aside for it is another.

The usual approach is to apportion the gain by the share of floor area used to earn income and the length of time it was used that way. One key test is whether interest on a home loan would have been deductible for that area. Employees who simply work at a desk at home generally can't claim occupancy costs such as interest, so they generally don't lose any of the exemption.

Who is most exposed

The National Tax and Accountants' Association's Robyn Jacobson set out the issue in Accountants Daily on 4 September 2026. In her view the exemption itself is unchanged, but people who run a business from home or rent out a room may lose part of it.

That matters more after July 2027, because the taxable part of the gain will no longer simply be halved. It moves into the new system of indexation and the 30% minimum tax.

The NTAA has also raised with Treasury how the exemption applies to homes acquired before 1 July 2027. That suggests some practical detail is still being worked through.

How the gain is split after July 2027

the exemption continues "in full or in part". Where a home was not the main residence for the whole period, the gain is apportioned by comparing the days it was the person's residence with the days in the post-1 July 2027 ownership period. this applies both to the deferred pre-2027 gain and to the post-2027 gain.

the existing rules carry on as before. These include the six-year absence rule, the rules for moving between homes, the rule for homes first used to produce income after 20 August 1996, and the rules for inherited dwellings.

Under the new system generally, growth up to 30 June 2027 keeps the 50% discount through a deemed market-value disposal on that date. Growth after that date is taxed using an indexed cost base, with the 30% minimum tax underneath it.