Updated 10 October 2026
Section 118-192 ITAA 1997 deems you to have acquired your home at its market value on the day it first produces income, wiping every dollar of growth from your owner-occupier years out of the CGT calculation. The rule is automatic where its conditions are met, not a choice, and it converts one question into the whole tax outcome: what was the property worth on that day?
At a glance
- Section 118-192 resets a former home's cost base to market value on the day it first earns income
- The reset is mandatory where it applies, not a choice
- It applies where income first arose after 20 August 1996 and the full exemption would have covered a sale just beforehand
- All growth while you lived in the home is excluded from CGT
- The market value at the first-income date is the number the entire future calculation stands on
In this guide
What the rule does
Ordinarily, a home that becomes a rental would have its gain apportioned over the whole ownership period from the original purchase price, dragging your private years into the tax net. Section 118-192 replaces that with a clean break: you are taken to have acquired the dwelling at its market value at the time it first produced income. The pre-rental growth vanishes from the calculation. Your holding period for the CGT discount also restarts from that day, which is the rule's one sting: rent the home out and sell within twelve months and the discount is off the table for that gain.
The three conditions
The reset applies, automatically, where all of the following hold:
- The dwelling first produced income after 20 August 1996. Rentals that began before that date stay on the old apportionment method.
- You would have received a full main residence exemption if a CGT event had happened to the dwelling just before it first produced income. It was wholly your home up to that day, no rented rooms, no deducted business area, no unclaimed prior absences.
- It is the first time the dwelling produced income during your ownership.
Warning
Automatic cuts both waysWhere the conditions are met you cannot opt out and use the original purchase price, even in the rare cases where that would produce a better answer, such as a home that fell in value while you lived in it. The market value at the income date is your cost base, full stop, which is one more reason to have that value professionally established rather than argued about later.
When it does not apply
- Renting a room while you live there. Partial income use of your continuing home is handled by section 118-190's floor-area apportionment, not by a 118-192 reset, because you would only have had a partial exemption just before, failing the second condition.
- Rented first, lived in later. The property was never fully exempt before the income use, so there is no reset. The gain apportions from your original purchase, which is the expensive sequence covered in our main residence exemption guide.
- A second stint of income use. The reset happens once, at the first income time. Later rental periods reuse the same reset value.
- Pre-20 August 1996 rentals. Old apportionment applies.
Worked example
Note
Worked exampleNadia bought a Prospect house in 2014 for $430,000 and lived in it as her only home. In February 2026 she moved in with her partner and leased the house, with a valuation supporting $815,000 at the lease commencement. She buys into her partner's home, so she does not use the six-year absence choice, and sells the Prospect house in February 2031 for $960,000.
Cost base under section 118-192: $815,000. Gain: $145,000 over five fully taxable rental years, before incidental costs, with the 1 July 2027 reform splitting that gain at the market value on that date. Without the reset the calculation would have started at $430,000 with apportionment across 17 years. The valuation at the lease date removed $385,000 of owner-occupier growth from the tax net for a $297 report.
The section 118-192 value and the 1 July 2027 reset value are two separate resets that can both sit on one property. Our CGT calculator shows the second of them, and the CGT changes page explains the rules that follow it.
Turned your home into a rental?
Fix the section 118-192 reset value, at the time or retrospectively. Reports signed by a Chartered Accountant and Certified Property Valuer. $297 residential, incl GST, 24 to 48 hours, Australia-wide.
Start your orderHow it worksHow it works with the six-year rule
The reset and the absence choice are separate levers that stack. Section 118-192 fixes the cost base at the first income date. Section 118-145 then lets you treat up to six years of the absence as still exempt. Sell inside the six years with the choice made and the reset value is never needed, because the exemption covers everything. Exceed six years, or spend the choice on another property, and the taxable slice is measured from the reset value. Because you cannot know in 2026 which way 2033 will play out, the valuation at the income date is the option premium: cheap now, decisive later. The mechanics of the choice are in our six-year rule guide.
Missed the date? The retrospective fix
Most owners only learn about section 118-192 from their accountant at sale time, years after the tenants moved in. The position is fully recoverable: a home to investment valuation prepared as a backdated property valuation at the first income date, from the comparable sales of that period, establishes the reset value the law always deemed you to have. Nail the date first, from the lease agreement, the managing agent's records or the first rental income in your return, then value to it. The same report also anchors the 1 July 2027 split if the property is still held across the reform date.
Note
From our valuation filesAn Adelaide couple bought their home in 2014 for $520,000, moved interstate in March 2021 and rented it out. They sold in 2025 for $780,000 and their accountant asked for the value on the day the first tenant moved in. A retrospective valuation supported $690,000 at March 2021, so the assessable gain was measured from $690,000 rather than $520,000: a $90,000 gain instead of $260,000, before the discount.
Details are changed. This is a composite of typical files rather than one client.
Common questions
What is the home first used to produce income rule?
Section 118-192 ITAA 1997. Where a fully exempt home first produces income after 20 August 1996, you are deemed to have acquired it at its market value on that day. Pre-rental growth is excluded from CGT and all future calculations run from the reset value.
How that day compares with the dates fixed for a sale, a death or the 2027 reset is covered in which date is the CGT valuation date.
Is the cost base reset optional?
No. Where the conditions are met the rule applies automatically, and you cannot elect to use your original purchase price instead. The only variable left is the market value at the income date, which is why it should be professionally established.
Does renting out one room trigger the reset?
No. Partial income use while you continue living in the home is dealt with by apportionment under section 118-190. The section 118-192 reset requires that the dwelling would have been fully exempt just before the income use, which partial rental defeats.
Can I get the valuation years after I started renting the property?
Yes. A retrospective valuation at the first income date, built from comparable sales evidence of that period, establishes the reset value. Confirm the exact date from the lease or agent records first, because the valuation attaches to the date, not the year.
