The CGT 6 year rule can allow Australian homeowners to keep treating a former home as their main residence for capital gains tax purposes for up to six years after moving out, even if the property is rented. In practical terms, this can mean a property sale is fully or partly protected by the main residence exemption, reducing or removing the capital gain that would otherwise be included in your tax return.
The rule is powerful, but it is not automatic. The property must first have been your main residence, the rental periods must be tracked, and you generally cannot choose more than one property as your main residence for the same period. The rules are also much harsher for foreign residents, who are generally excluded from the main residence exemption when they sell unless narrow exceptions apply.
This guide explains the six year rule, how it interacts with Capital Gains Tax (CGT), what records property owners should keep, where a partial exemption may apply, and why a professional market valuation can matter when a former home becomes an income producing asset.
Key Facts About CGT 6 Year Rule
- The six year rule lets you keep treating a former home as your main residence for CGT purposes for up to six years while it is used to generate income, such as by being rented out.
- If the property vacant period is not used to earn rental income or otherwise produce income, the six year limit does not apply in the same way, although you still need to consider whether you nominate another home.
- Rental income must still be declared as assessable income, and deductible expenses should be handled separately in your annual income tax return.
- If you establish another main residence and choose it as your exempt home for the same period, you may lose the continuing main residence exemption for the former home for that overlap.
- Foreign residents are generally unable to access the main residence exemption for a property sale after the 30 June 2020 transitional date unless a specific life-event exception applies.
- CGT is highly facts-and-dates driven. Accurate records, valuation evidence and advice from property tax specialists can materially affect the tax outcome.
CGT 6 Year Rule Explained
The CGT 6 Year Rule is the common name for the absence rule in Australia’s main residence CGT regime. It allows a dwelling that was your main residence to continue being treated as your main residence after you move out.
Where the former home is used to produce income, the rule can apply for up to six years for each absence period. If you move back in and genuinely re-establish the property as your main residence, a later absence may start a new six year period. This is why people often say the six year period resets, but the reset depends on genuinely living in the same property again, not simply moving furniture back for a token period.
The six year exemption rule is most relevant when a homeowner turns a principal residence into a rental property. For example, you may move interstate for work, rent out your old home, and later sell it. If the property qualifies and the rental period fits within the six year exemption period, the resulting capital gain may be generally exempt under the main residence exemption.
The rule is not a separate tax concession that sits outside CGT. It is part of the CGT main residence exemption framework in Australian tax law. That means the usual main residence criteria mentioned by the Australian Taxation Office still matter: whether you actually lived there, where your personal belongings were kept, where your mail was sent, whether utilities were connected in your name, your electoral roll address, and how long you lived there.
| Question | Simple answer |
|---|---|
| What does the CGT 6 year rule do? | It can allow a former main residence to keep being treated as your main residence for CGT purposes after you move out. |
| How long can it apply while rented? | Up to six years for each qualifying absence period. |
| Does rent still need to be declared? | Yes. Rental income is assessable income and must be reported separately. |
| Can you claim it on two homes at once? | Usually no. You generally cannot treat two properties as your main residence for the same period. |
| Can the six year period reset? | It may reset if you genuinely move back in and re-establish the property as your main residence. |
| Do foreign residents qualify? | Generally no, unless narrow exceptions apply. |
Capital Gains Tax and CGT 6 Year Rule
Capital gains tax is not a separate tax with a separate tax return. It is the part of income tax that applies when a CGT asset is sold or otherwise disposed of and a capital gain arises. For individuals, a net capital gain is included in taxable income and reported in the annual income tax return.
A home is usually a CGT asset, but your main residence is usually eligible for a CGT exemption if the property qualifies as your main residence for the entire ownership period. If it does, a full main residence exemption can mean you do not pay capital gains tax on the sale.
If only part of the ownership period is covered, or if the property was used partly to produce income, a partial main residence exemption or another partial exemption calculation may apply. In that case, only the taxable capital gain is included in your net capital gain. The difference between a full exemption and a taxable gain can have a significant effect on the final tax bill.
A sale can trigger capital gains tax even when no cash profit feels obvious. CGT calculations look at capital proceeds, cost base, ownership history, income-producing use, exemptions and discounts. Your asset cost base may include the purchase price and certain incidental costs, ownership costs and improvement costs, but the correct treatment depends on the facts and the records you hold.
Main Residence Exemption
The main residence exemption is the rule that can disregard a capital gain or capital loss made from selling your home. At its simplest, you may receive a full main residence exemption if the dwelling was your home for the entire ownership period, was not used to produce assessable income, and the land is within the permitted area.
The Australian Tax Office explains the practical indicators for whether a property is your main residence. No single factor is decisive. Evidence may include the address on your electoral roll, driver licence and bank accounts, the connection of gas, electricity and other services, where your family lives, and where your personal possessions are located.
For property investors, the complexity usually starts when a main residence becomes an investment property. The property may begin to earn rental income, you may claim deductions for interest, rates, repairs or depreciation-related expenses, and the home may become an income producing asset for part of the ownership period. That is when the absence rule and the cost base rules need careful attention.
A common misunderstanding is that renting the property immediately destroys the exemption. It does not necessarily do that. If you meet the conditions, the continuing main residence exemption may cover a rental period of up to six years. However, if the rental period exceeds the six year limit, the excess period may create a partial exemption calculation and a taxable capital gain.
Capital Gains Tax CGT and the absence rule
Capital gains tax CGT outcomes under the absence rule depend on three questions.
First, was the property genuinely your main residence before you moved out? You cannot usually buy a property, never live in it properly, rent it out, and then rely on the six year rule. The property as your main home must be established before the absence rule becomes relevant.
Second, did the property generate income while you were absent? If it did, the up to six years cap applies to that income-producing absence. If the property vacant period did not generate income, the absence may continue indefinitely for main residence purposes, provided you do not choose another property as your main residence for that period.
Third, did you treat only one property as your main residence for the relevant period? Australian tax law generally does not let you obtain a full exemption on two different dwellings for the same period, except for limited overlap rules when changing homes. If you own more than one property, choosing which property is treated as your main residence can affect both properties.
This is why the six year clock should be tracked from the date the property first becomes income producing during your absence, not from a vague memory of when you “moved out”. Lease dates, agent statements, advertising records, utility records and occupancy evidence can all matter.
| Event | CGT 6 Year Rule Impact |
|---|---|
| You move out but the property stays vacant | The six year income-producing limit may not apply yet |
| The property is first rented or available for rent | The six year income-producing period usually starts |
| The property is rented for six years or less | The absence rule may cover the full rental period |
| The property is rented continuously for more than six years | The excess period may create a taxable capital gain |
| You genuinely move back in as your main residence | A later absence may start a new six year period |
| You only move belongings back briefly | This may not be enough to reset the six year period |
Foreign Residents and CGT 6 Year Rule
Foreign residents need particular care. For disposals after the end of the transitional period on 30 June 2020, foreign residents are generally not entitled to the main residence exemption. This can mean a foreign resident may pay CGT on a property that would have been fully or partly exempt if sold while they were an Australian tax resident.
The foreign resident rules are strict and can override what would otherwise feel like a normal six year rule scenario. A person might have lived in the property as their main residence, moved overseas, rented it out for less than six years, and still be denied the exemption if they are a foreign resident at the time of sale.
There are limited life-event exceptions in the legislation, including defined circumstances involving terminal medical conditions, death, or certain family law matters. These exceptions are narrow. The key practical point is that the foreign residents benefit that may once have been assumed under the old rules is no longer generally available.
If you are leaving Australia or returning to Australia, timing can materially change the tax liability. Before signing a contract, obtain advice on residency status, the contract date, whether any exception applies, and whether selling while resident or non-resident changes the tax position.
| Owner’s Status at Sale | Main Residence Exemption Position | Practical Risk |
|---|---|---|
| Australian tax resident | May access the exemption if conditions are met | Dates, rental periods and records still matter |
| Foreign resident | Generally denied the exemption unless an exception applies | A former Australian home may become taxable |
| Returning Australian resident | Timing of sale may affect the outcome | Residency should be reviewed before signing a contract |
| Foreign resident with a life-event exception | Exemption may still be possible in narrow cases | Specialist advice is needed |
Capital Gain
A capital gain is broadly the difference between what you receive on sale and the relevant cost base, subject to adjustments. For a former home, the CGT calculation may involve several layers:
- the original purchase price and acquisition costs;
- improvement costs and certain ownership costs;
- any market value rule that applies when the home is first used to produce income;
- the number of days covered by the main residence exemption;
- any days outside the exemption period;
- whether a CGT discount is available; and
- whether the taxpayer is a resident or foreign resident.
The market value point is often misunderstood. In some circumstances, where a dwelling that was fully exempt as a main residence is first used to produce income after 20 August 1996, the law treats the owner as having acquired it at market value at that first income-producing time. This can reset the property’s market starting point for later CGT calculations. However, the interaction with the absence rule and any full exemption claim is technical, so it should be reviewed before assuming the cost base automatically resets in every six year rule case.
Where a professional market valuation is needed, it should be prepared retrospectively as at the relevant date, not guessed years later. Duo Tax’s property valuation services can assist where a defensible market value is needed for tax records, accountant review or CGT modelling.
Main Residence
A main residence is more than a property you own. It is the dwelling that is genuinely your home. The ATO’s main residence criteria look at real-world occupation and supporting evidence.
Useful evidence can include:
- the date you moved in;
- utility connection dates;
- electoral roll and licence address updates;
- insurance records;
- mail redirection records;
- school or work location evidence;
- photographs, moving invoices or occupancy records;
- the date you moved out;
- the date the property was advertised for rent; and
- the first date you began to earn rental income.
These details matter because the absence rule does not fix a weak main residence claim. If the property was never genuinely established as your main residence, the six year rule may not be available. If the property was your home, the records help show when the exemption period began and whether the six year period resets after a genuine return.
CGT Exemption
A CGT exemption under the main residence rules can be full or partial. Full exemption is most likely where the property was your main residence for the entire ownership period, or where the absence rule covers the full period after you moved out and no competing main residence choice is made.
A partial exemption can apply where:
- the property was not your main residence for the entire ownership period;
- you rented it for longer than the six year limit while absent;
- you used part of the home to generate income, such as a separate studio or business area;
- you chose another home as your main residence for an overlapping period;
- the land exceeds the permitted area; or
- foreign resident rules deny or limit access to the exemption.
The calculation can be day-based and fact-specific. A common high-level formula considers the non-main-residence days divided by total ownership days, applied to the capital gain before any relevant discount. That broad explanation should not replace professional advice because the correct tax outcome can vary with market value rules, improvements, inherited property, spouse rules and residency.
Foreign Residents Benefit
The phrase foreign residents benefit can be misleading in current CGT discussions. Historically, non-residents had broader access to the main residence exemption. Current rules generally remove that benefit for foreign residents at the time of the CGT event, subject to narrow life-event exceptions.
For expatriate property owners, the practical issue is not simply whether they once lived in the property. It is whether they are an Australian tax resident when the contract is signed, whether they satisfy any exception, and how the foreign resident CGT withholding and main residence rules interact.
Foreign residents should not assume that a former principal residence is protected because it was once their Australian home. This area should be reviewed before sale, especially where the property has strong growth, long rental periods or incomplete valuation records.
Investment Property
Many six year rule questions arise when a home becomes an investment property. From the day the property begins to earn rental income, the owner also has ordinary tax obligations.
Rental income is assessable income and must be declared. Expenses connected with earning that income may be deductible, subject to the normal rules. You may also need a tax depreciation schedule if the property contains depreciable assets or eligible capital works deductions. Those rental deductions are separate from whether the future property sale is protected by the cgt exemption.
Do not confuse income tax deductions with CGT exemption. You might claim deductions while the property is rented and still be able to use the six year rule for CGT purposes. Conversely, claiming deductions does not guarantee CGT protection. The CGT analysis depends on main residence status, absence periods, income-producing use and elections.
State taxes also need separate consideration. Land tax is administered under state and territory rules and is not the same as capital gains tax. A property may have one treatment for federal CGT and a different position for land tax or local surcharges.
Former Home
A former home can remain your main residence for CGT purposes under the absence rule, but you need to decide how it fits with your current living arrangements.
Consider a simplified example. Priya buys an apartment in Sydney and lives in it for three years. She then moves to Brisbane for work and rents out the Sydney apartment. She does not buy another home. Four years later, she sells the Sydney apartment while she is still an Australian tax resident. If the property qualifies and she chooses to keep treating it as her main residence during the absence, the capital gain may be fully covered by the main residence exemption.
Now change the facts. Priya rents the apartment for eight consecutive years before selling. The first six years may be covered by the six year rule, but the remaining two years could produce a partial exemption calculation. She may still reduce the taxable gain, but she may not eliminate it.
Change the facts again. Priya buys a Brisbane house and chooses that house as her main residence for the same period. She generally cannot also treat the Sydney apartment as her main residence for that same period. The choice may affect which property produces greater CGT savings, but it should be modelled carefully rather than assumed.
CGT Savings
CGT savings from the six year rule can be substantial, but the article should not be read as a promise that a taxpayer will pay no tax. The actual tax benefits depend on eligibility, dates, residency, market value evidence, the cost base, selling costs, the CGT discount and the owner’s taxable income in the sale year.
For some property owners, the best result is a full exemption. For others, the best available outcome is a partial main residence exemption that reduces the taxable capital gain. In some cases, especially for foreign residents, the exemption may be unavailable and the owner may need to pay capital gains tax on the full taxable gain, subject to other rules.
A careful review before sale can help you:
- identify the relevant six year exemption period;
- check whether the six year period resets after genuine re-occupation;
- decide which home to nominate if you have more than one property;
- gather accurate records before memories fade;
- obtain a professional market valuation where required;
- estimate the likely net capital gain; and
- avoid surprises in your tax bill.
Other CGT Exemptions
Other CGT exemptions may also be relevant, but they are separate from the six year rule. Examples include the rules for inherited dwellings, marriage or relationship breakdown rollovers, compulsory acquisition rollovers, small business CGT concessions and certain exemptions for personal use assets.
These rules have their own eligibility tests and should not be blended together casually. For example, inheriting a dwelling can involve special two-year and main residence rules. A relationship breakdown transfer may defer a gain rather than remove it. A small business concession usually depends on active asset and business conditions, not simply owning a rental property.
The key point is that the six year rule is only one part of the CGT system. If your ownership history includes inheritance, divorce, subdivision, rebuilding, home business use, foreign residency, trusts, companies or mixed-use property, get advice before relying on a general article.
Practical checklist before relying on the six year rule
Before selling a former home, gather the following:
- Purchase contract, settlement statement and acquisition costs.
- Evidence of when the property became your main residence.
- Evidence of when you moved out.
- Lease agreements, rental statements and dates of rental periods.
- Records showing whether the property was vacant or income producing.
- Details of any other home owned or treated as your main residence.
- Improvement invoices, ownership costs and selling costs.
- Any tax depreciation schedule or capital works records.
- A professional market valuation if the property’s market value is needed at first income-producing use or another relevant date.
- Residency status history, especially if you lived overseas.
This evidence helps your accountant determine whether the property qualifies, whether a partial exemption applies, and how much of any taxable capital gain should be reported.
Common mistakes to avoid
The most common mistake is assuming the year rule applies automatically. The six year rule requires a real main residence first, a clear absence period, and a conscious choice about which property is treated as the main residence.
Another mistake is ignoring rental income. Even if the future capital gain is exempt, rent received while the property is leased is still taxable income. You still need to lodge the correct tax return disclosures and retain records for deductions claimed.
A third mistake is forgetting the six year clock. If a property is rented continuously for more than six years, the period beyond six years may create a taxable gain. Moving back in can reset the clock, but only where you genuinely re-establish the home as your main residence.
Finally, many owners wait until after exchange of contracts to ask for advice. By that point, the tax position may already be locked in. CGT planning is best done before listing the property.
When to speak with property tax specialists
You should seek advice before relying on the six year rule if:
- you have owned more than one property;
- the former home was rented for close to or more than six years;
- you lived overseas or may be a foreign resident;
- part of the property was used for business or short-term letting;
- the property was inherited, transferred after a relationship breakdown or held through a trust;
- you need a retrospective market value;
- you have incomplete records; or
- the expected capital gain is large.
Duo Tax can assist with property valuation and tax depreciation schedule support, giving your accountant stronger evidence when reviewing CGT, cost base and property investment records. For advice about whether you personally qualify for the exemption, speak with a registered tax agent or qualified adviser.
FAQs
What is the CGT 6 year rule?
The CGT 6 year rule allows a former main residence to keep being treated as your main residence for cgt purposes for up to six years while it is used to produce income, provided the conditions are met.
Can I rent out my main residence and still avoid CGT?
You may be able to rent it out and still claim the main residence exemption if the property was genuinely your main residence first, the rented absence is within the six year exemption period, and you do not choose another property as your main residence for that same period.
Does the six year rule reset if I move back in?
The six year period resets only if you genuinely move back into the property and re-establish it as your main residence. Evidence such as utilities, address updates and actual occupation can help support the reset.
What happens if I rent the property for more than six years?
The period beyond six years may fall outside the continuing main residence exemption and create a partial exemption calculation. You may still reduce the taxable capital gain, but you may need to pay tax on the non-exempt portion.
Do I need to declare rent if the CGT gain is exempt?
Yes. Rental income is assessable income and should be declared in your annual income tax return. CGT exemption and rental income reporting are separate tax obligations.
Can foreign residents use the six year rule?
Foreign residents are generally not entitled to the main residence exemption for a sale after the transitional rules ended on 30 June 2020, unless a narrow life-event exception applies. Get advice before selling.
Does my cost base reset when I first rent out my home?
In some circumstances, a special market value rule can treat you as having acquired the dwelling at market value when it is first used to produce income. The interaction with the six year rule is technical, so obtain advice and keep valuation evidence.
How can Duo Tax help?
Duo Tax can help with property valuation and depreciation records that support your accountant’s CGT review. This can be useful where you need market value evidence, cost base records or investment property documentation before sale.
Final thoughts about CGT 6 Year Rule
The six year rule can be one of the most valuable CGT concessions available to Australian property owners, but it is also one of the easiest to misunderstand. It can protect a former home from capital gains tax for up to six years while rented, but only where the property was genuinely your main residence and the surrounding facts support the claim.
Before you sell, confirm the dates, check whether another home affects the exemption, review foreign residency issues, gather accurate records and consider whether a valuation is needed. The right evidence can make the difference between a full exemption, a partial exemption and an unexpected tax liability.
