I'm often asked by budding developers about how they can develop a site then live in one and use the main residence exemption when they live in one for three months or more. Nice tax saving opportunity ? Then a while later (3months +) they seek to sell....CGT exempt ? Sweet..... No. They should read Tax Ruling TD 92/135. This ruling expresses the ATO view that if the development results in ordinary income that the developer cannot also rely on the main residence exemption. The key here is the selling. Avoiding sale and residing in and holding the asset (very) long term may help to distinguish the asset as being held on capital account. The time that the property is lived in is essential also. The CGT absence rule may not operate either where the asset is not occupied for a long term.