Five cases, five partial answers
The full exemption needs an Australian resident and a home that was lived in for the whole time it was owned, never used to produce income, on land of 2 hectares or less. Each case below breaks one of those.
Part of the home was rented out, or ran a business
Renting out part of the home, or running a business from it, rules out the full exemption, though a partial one may apply. On sale, the part used to earn assessable income is subject to the tax.
The ATO measures that part with the ‘interest deductibility test’: would you be allowed a deduction for home loan interest if you had borrowed to buy the home? The test applies even if you never borrowed. If you would be able to claim part of the interest, the home is subject to the tax to the same extent; for a rental, the ATO’s example is the floor area tenants used.
A business counts only where the home is your principal place of business and has space set aside just for it; working from home now and then, or by choice, does not qualify.
You lived there first, then rented it out
For a former home that earns income, you can choose to go on treating it as your main residence for as long as 6 years after moving out, and the 6 years apply to each separate absence. While you do, no other property can be your main residence, except for up to 6 months while you move house. Rented for more than 6 years in one absence, it becomes subject to the tax for the time after the limit. A part of the home you were already using to produce income before you moved out cannot share in that continuing exemption, before or after you leave.
When a home is first used to produce income, you are generally taken to have acquired it at that moment. If the 6-year limit is then exceeded, your cost base is its market value at that time plus allowable costs since. The ATO calls this the ‘home first used to produce income rule’, and it has four conditions; two of them are that you acquired the property on or after 20 September 1985 and first used it to produce income after 20 August 1996. The ATO’s page lists the others and the exclusions, among them a dwelling inherited from someone whose main residence it was and sold within 2 years.
Two practical points follow. The ATO says you must get a market valuation of the home when you first start renting it out or running a business from it, if that was after 20 August 1996. And if you sell within 12 months of first using it to produce income, you cannot use the CGT discount.
It was a rental first, then your home
If a rental property becomes your main residence, the exemption covers only the time you lived there; for the time it was rented out, you will be liable for the tax when you sell.
You did not move in straight away
A home qualifies from the moment you acquire it, on the condition that you move in as soon as practicable. For a home you buy, the time you acquire it is the settlement date of the contract.
You were a foreign resident when you sold
A foreign resident cannot claim the exemption for property sold after 30 June 2020 unless they meet the life events test. That holds even if you were an Australian resident for part of the time you owned the home.
The test has two parts, and both must be met. One is time: your period as a foreign resident for tax purposes ran continuously for no more than 6 years. The other is that, during that period, one of these occurred: you, your spouse or your child under 18 had a terminal medical condition; your spouse or your child under 18 died; or the sale happened because of a formal agreement after the breakdown of your marriage or relationship. The ATO’s page sets out the exact wording, which decides each case.