The 6 year rule is one of the most valuable, and most misunderstood, exemptions in Australian tax law. If you bought a home, lived in it, then moved out and rented it, the 6 year rule may let you sell that property CGT-free for up to six years after you moved out.
Understanding exactly how the 6 year rule works, and where it stops working, is worth your time before you make any decisions about selling.
How the 6 year rule works
Your main residence is generally exempt from Capital Gains Tax. Normally, a property stops being your main residence the day you stop living in it. The 6 year rule (also called the six-year CGT rule or the absence rule) lets you keep treating a former home as your main residence for CGT purposes for up to six years, even after you have moved out, provided you rented it out during that period.
If you moved out but did not rent the property out at all, the exemption continues indefinitely. The six-year clock only starts once the property begins producing income.
To qualify for the 6 year rule, the property must have genuinely been your principal place of residence before you rented it out. A property bought and immediately leased to tenants, never lived in, does not qualify.
There is also a one-property rule. During the time you treat the property as your main residence after moving out, you cannot treat any other property as your main residence at the same time, except for up to six months if you are moving house.
The 6 year clock can reset. According to the ATO, the six-year limit applies separately to each period of absence after you lived in the property. A first rental period within the six-year limit and a second rental period within the limit can both qualify, provided you moved back in between them.
The ATO sets out the full rules at ato.gov.au.
When the 6 year rule does not apply
Exceeding six years of rental
When you rent for more than six years, the "home first used to produce income" rule kicks in. The ATO treats the property as if you acquired it on the day it first became available for rent, at the market value on that date. Your cost base for CGT purposes resets to that figure. Any growth from before that date is effectively sheltered by the 6 year rule; growth from that point forward is not.
Becoming a foreign resident
If you cease to be an Australian tax resident and decide to sell your home in Australia after 30 June 2020, you are generally not entitled to the main residence exemption unless you satisfy certain conditions, so you may be liable to pay CGT on the sale. This is one of the more common traps for Australians who move overseas for work. Residency status at the point of sale matters, not just at the point of moving out.
Nominating a second property
If at any point during the rental period you nominate a different property as your main residence, the 6 year exemption on the original property ends from that date. You can only hold one main residence at a time.
Partial application of the rule
Where the exemption only applies for part of your ownership period, the gain on the non-exempt portion is still subject to tax. The 50 percent CGT discount for Australian resident individuals who have owned an asset for 12 months or more still applies, meaning you pay tax on only half the assessable capital gain. That discount sits alongside, not instead of, the main residence exemption calculation.
Worked example: 6 year rule in practice
Say you bought an apartment in Melbourne in 2018 for $650,000 and lived in it as your main residence. In 2021 you took a role interstate and rented it out. You sell it in 2026, five years into the rental period, for $950,000.
- Rental period: five years. Within the six-year limit.
- You did not nominate another property as your main residence during that time.
- You remained an Australian tax resident throughout.
- You did not treat a second property as your main residence at any point during that period.
In that scenario, the full capital gain of $300,000 (before costs) would be covered by the main residence exemption under the 6 year rule. No CGT would apply.
Now change one detail: you sell in 2028, seven years into the rental period. The 6 year rule covers the first six years of the rental period. The remaining portion of the gain is assessable. The ATO would deem your cost base to reset to the market value on the day you first rented it out in 2021, and the gain from that point forward (split across exempt and non-exempt years) would need to be calculated with your accountant. The 50 percent CGT discount would apply to the non-exempt portion if you have held the property for more than 12 months in total.
These are illustrative numbers only. The actual calculation is sensitive to holding periods, costs, and your tax position in the year of sale. A registered tax agent or accountant should run the actual figures for your situation.
What to check before you act
Confirm your residency status. If there is any chance you have become a foreign resident for tax purposes during the rental period, get specific advice before signing a contract. The rules for foreign residents differ significantly from those for Australian tax residents.
Get a market valuation dated to the right point. If you first rented the property after 20 August 1996, the law may treat you 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. Where a professional market valuation is needed, it should be prepared retrospectively as at the correct date, not guessed years later.
Talk to the right people before you list. A registered tax agent or accountant familiar with CGT and property can map out your specific dates and tell you exactly which periods are exempt under the 6 year rule and which are not. A buyer's agent or property specialist can help you think through your broader property position, including whether holding, selling, or converting to a long-term investment property suits your circumstances.
You can also speak with the EWC team if you want to understand how the 6 year rule intersects with your broader investment property plans.
Frequently asked questions
Does the 6 year rule apply if I never lived in the property?
No. To use the 6 year rule, the property must have genuinely been your main residence before you began renting it out. A property bought and immediately leased out, never lived in, does not qualify.
Can I use the 6 year rule more than once?
Yes. The six-year clock applies separately to each period of absence. If you move back in and later move out again, a fresh six-year window can begin, provided the property was genuinely your main residence during the intervening period.
What happens if I rent the property out for more than 6 years?
The exemption covers the first six years. After that, the ATO applies the "home first used to produce income" rule. Your cost base resets to the market value on the day the property first became available for rent, and any gain from that point forward is potentially assessable.
Does the 6 year rule still work if I move overseas?
Not automatically. If you become a foreign resident for tax purposes and sell your home after 30 June 2020, the main residence exemption is generally not available unless you meet certain exceptions (such as a life event exception within a limited window). Always get specific tax advice before selling if your residency status has changed.
Can I claim the 6 year rule on more than one property at once?
No. You can only treat one property as your main residence at any point in time (with a small overlap allowed when you are moving house, typically up to six months).
Is the 6 year rule the same as the 6-year CGT rule?
Yes. The "6 year rule", "six-year CGT rule" and "absence rule" all refer to the same provision in Australian tax law. It is codified in the Income Tax Assessment Act 1997 and enforced by the ATO.
General information only, not personal financial advice. Speak with a licensed adviser before acting on any of the above.