Updated 8 October 2026
The day your home first earns income, section 118-192 usually resets its CGT cost base to the market value on that date. The reset is mandatory where it applies, and every dollar of growth while you lived there falls out of the calculation. We value that date, current or years in the past, from $297 inc. GST.
At a glance
Section 118-192 of the Income Tax Assessment Act 1997 treats you as having acquired the dwelling at the moment it first produced income, for its market value at that time. Your original purchase price stops being relevant. So do the improvements you made while living there, because they are already inside the market value at the changeover date.
The effect is generous. Suppose you bought for $480,000, lived in the property for a decade while it grew to $860,000, then rented it out. Under the reset your cost base becomes $860,000. The $380,000 of growth that accrued while it was your home is never taxed. Only what happens after that date is in the CGT net.
The catch is that the entire benefit rests on one number, and that number has to be evidenced by a capital gains tax valuation. A figure recalled from memory or lifted from an old agent letter is not evidence.
Three conditions have to be met:
The third condition is the one that decides most cases. It means the property must have been genuinely your main residence, and fully exempt, up to that point.
The rule does not apply where:
Where the rule does not apply, the ordinary cost base rules continue, and the taxable portion is worked out by apportionment instead. That still often needs a valuation, just for a different purpose. See the main residence exemption.
Note
Worked exampleA home bought in 2012 for $520,000, with $22,000 stamp duty, $1,500 legal costs and a $60,000 extension added in 2015. The owner moved interstate in 2018 and rented the property out. It sells in 2026 for $940,000, with $24,700 of selling costs.
Without a valuation at the 2018 date: the cost base is built from the original figures, $520,000 plus $22,000 plus $1,500 plus $60,000 plus $24,700, being $628,200. The gain is $311,800, halved by the 50 per cent discount to $155,900 assessable.
With a valuation showing $700,000 at the date it first earned income: the first element resets to $700,000, so the cost base is $700,000 plus $24,700, being $724,700. The gain is $215,300, halved to $107,650 assessable.
A difference of $48,250 in assessable gain, or roughly $18,800 of tax at a 37 per cent marginal rate plus the 2 per cent Medicare levy, against a $297 fee.
Note the extension does not get added on top of the reset value. It is already reflected in what the property was worth in 2018. Adding it again would be double counting.
A home converted before 1 July 2027 will carry two resets: the first-income-date value and the 1 July 2027 value. Our CGT calculator shows the second one applied to a property in your market.
Lock in the market value at the date it first earned income, before the evidence gets harder to find. Residential $297, commercial $595, AUD inc. GST, delivered in 24 to 48 hours.
Start your orderHow it worksSection 118-145 lets you keep treating a former home as your main residence for up to six years while it earns income, and indefinitely if it does not. The two provisions work together rather than competing.
If you sell inside the six-year window and the choice is available, the exemption can cover the whole gain and the reset value is never used. If you exceed six years, buy another main residence, or become a foreign resident before selling, part or all of the gain becomes taxable, and it is measured from the section 118-192 reset value.
You cannot know in advance which of those futures you are in. That is the argument for obtaining the valuation at the changeover: it costs a few hundred dollars and it is the only version of the evidence that will ever be cheap. See the six-year rule.
Most people do. The reset still applies; it is not conditional on you having obtained a valuation at the time. What changes is how the value is established.
A retrospective property valuation determines the market value as at the past date using sales that settled around it. It is a normal, accepted approach and it costs the same as a current report with us. What it cannot do is recreate condition evidence that no longer exists, so the more you can supply about the property at the time, particularly photographs and the lease commencement records, the stronger the report.
If you have already lodged returns using an estimated figure, an amendment may be available within the applicable period of review. That is a conversation for your accountant, and a supportable valuation is what it depends on.
The date the dwelling first produced income, not the day you moved out and not the day you decided to rent it. In practice that is usually the lease commencement date, and it is evidenced by the tenancy agreement or the managing agent's statement.
For how that day compares with the dates the law fixes for other events, a sale, a death or the 2027 reset, see which date is the CGT valuation date.
Two situations complicate it. Where a property was listed for rent and sat vacant for a period, the income date is when it began producing income rather than when it was advertised. Where only part of the dwelling was let, for example a room or a granny flat, the position is a partial exemption question rather than a straightforward reset. Tell us the facts and we will value the date your accountant nominates.
| Report | Fee (AUD inc. GST) | Turnaround |
|---|---|---|
| Residential, current or retrospective date | $297 | 24 to 48 hours |
| Commercial or mixed use | $595 | 24 to 48 hours |
The fee is fixed and quoted before we start. A retrospective date costs the same as a current one.
Almost always, yes. Section 118-192 resets your cost base to the market value on the day the property first earns income, and that value determines any future taxable gain. Obtaining the valuation at the time is far cheaper and stronger than reconstructing the figure years later when you sell.
It is section 118-192 ITAA 1997. Where a dwelling that would have been fully exempt starts producing income after 20 August 1996, you are taken to have acquired it at that time for its market value. All growth during your occupation is excluded from CGT and only later growth can be taxed. The reset is mandatory where the conditions are met.
Yes. Retrospective valuations for the first-income date are the most common report we prepare. Market value is established from sales that settled around that date, at the same fee as a current valuation, delivered in 24 to 48 hours.
No. The rule only applies where the dwelling would have qualified for a full main residence exemption immediately before it first produced income. A property rented out before you ever lived in it does not get the reset, and the exemption is worked out by apportionment instead.
