Quick answer
Where a dwelling that would have been fully exempt is first used to produce income after 20 August 1996, ITAA 1997 s118-192 deems you to have acquired it at market value on that day. That deemed value, not the purchase price, becomes the cost base — so a valuation at the first income-producing date is mandatory rather than optional.
What section 118-192 does
Section 118-192 of the ITAA 1997 applies where you would otherwise get only a partial main residence exemption because the dwelling produced income during your ownership period; that income-producing use first occurred after 7.30pm ACT legal time on 20 August 1996; and you would have got a full exemption had a CGT event happened just before that use began.
Where all three conditions are met, you are taken to have acquired the dwelling at the income time for its market value at that time. Your actual purchase price stops being relevant, and so do the acquisition costs — the market value replaces the cost base rather than being added to it.
It is not a choice
This is the point most commonly misunderstood. Where the conditions are met the reset applies automatically — you cannot elect out of it because the market value happens to be lower than your purchase price. Owners who first rented in a soft market are sometimes worse off under the rule than they would have been on their actual cost, and there is no relief for that.
Because it is compulsory, the valuation is not optional either. The figure has to be established, and the further the date recedes the harder and more expensive that becomes.
How it interacts with the six-year rule
The two provisions work together and the order matters. If you make the absence choice under s118-145 and the dwelling stays fully exempt for the whole ownership period, there is no partial exemption — so s118-192 never engages and no valuation is needed.
It engages when the exemption becomes partial: the absence exceeded six years, or you chose to cover a different dwelling for part of the period, or part of the home was rented while you still lived there. At that point the deemed market value at first income-producing use becomes the starting figure for the apportionment.
- Absence under six years, dwelling fully exempt — no valuation required.
- Absence exceeding six years — s118-192 valuation at first rental, plus apportionment.
- Another dwelling nominated for part of the period — valuation likely required.
- Part of the home rented while you lived there — valuation plus a floor-area apportionment under s118-190.
- Non-resident at the time of sale — seek advice; the main residence exemption is generally unavailable to foreign residents, which changes the analysis entirely.
Which day is the "income time"?
The statute refers to the first time the dwelling was used for the purpose of producing assessable income. In the ordinary case that is when it was first genuinely available for rent — advertised and ready — rather than the day a tenant moved in, and the distinction can matter in a fast market.
Where preparation work delayed the first tenancy, the position is arguable and it is a question for your tax agent rather than for us. Tell us the date you want us to value to; we will value to it and state it plainly on the face of the report.
If you are moving out this month
Obtain the valuation now. A valuation effective today, prepared today, with an internal inspection of the property in its current condition, is the strongest and cheapest version of this report you will ever be able to get. Ours start at $440 including GST for a standard metropolitan residential property.
If you are not going to commission one, at minimum create a record: date-stamped photographs of every room and the exterior, the rental listing, the signed lease, and any renovation invoices. It will materially reduce the cost and improve the quality of the retrospective report you may need in a decade.
Questions we are asked about this
Can I choose not to apply the cost base reset?
No. Where the conditions in s118-192 are met the reset is compulsory, even where it produces a worse outcome than your actual cost base. This is a common and expensive surprise.
Does the reset include the stamp duty I paid?
No. The market value at the income time replaces the cost base rather than being added to your original acquisition costs, so stamp duty paid on the original purchase is not included.
I moved out in 2014 and never got a valuation. What now?
A retrospective valuation effective the date the property was first available for rent. We prepare these routinely using settled comparable sales from that period, council records and historical imagery. Send any photographs and the first lease — both improve the report.
Does this apply if I only rented a room out?
Potentially, alongside a floor-area apportionment under s118-190. Partial income-producing use of a main residence reduces the exemption by reference to both the area and the period, and both need evidence.
Keep reading
Sources
- Income Tax Assessment Act 1997 — Consolidated Act, AustLII
- Market valuation for tax purposes — Australian Taxation Office — the eight valuation fundamentals
- Australian Property Institute — Professional Practice Standards and the CPV designation
This page is general information about how valuations are used for tax purposes. It is not tax advice. Your accountant or tax agent should confirm which provision applies to your circumstances.
Written and reviewed by
Jarrad Khoury
Head of Valuations at Asset Valuations Group, where he leads the Business Valuation Services division. Over 10 years in property and business valuation. Registered Valuer in Queensland (Not Limited), Licensed Valuer in Western Australia (Not Limited), CPV through the Australian Property Institute (Not Limited), CPV and CBV through the Australian Valuers Institute, and Registered Business Valuer through the AIBB.
Last reviewed 15 September 2026 · About the practice · Editorial policy