Move out of your home, rent it out for five years, then sell it — and pay zero capital gains tax. That’s the promise of Australia’s 6-year rule, and for once the promise is real. Under section 118-145 of the tax law, you can keep treating a former home as your main residence for CGT purposes for up to six years after you stop living in it, even while tenants are paying you rent.
But the rule has sharp edges, and most of what goes wrong happens before the first tenant moves in. One thing to watch: from 1 July 2027 the 50% CGT discount is replaced by cost base indexation plus a 30% minimum tax on net capital gains — so anyone whose absence runs past the 6-year mark needs to know which regime their gain falls under. More below.
How the 6-year rule actually works
Your main residence is normally exempt from CGT. The 6-year rule lets that exemption travel with you after you move out. Five conditions decide whether you qualify:
1. It must have genuinely been your main residence first. This is the condition that sinks most claims. You need to have actually lived there — electoral roll, driver’s licence, utility bills, mail. The ATO’s data-matching makes the timeline easy to verify.
2. The 6-year clock only runs while it’s income-producing — and it’s cumulative. If you rent the place out, you get a maximum of six years of deemed main-residence treatment per absence. If you move out and leave it vacant — or use it only privately, like a holiday home — there is no time limit at all. The exemption can continue indefinitely. Note the six years need not be continuous: rent for two years, leave it vacant for a year, rent for four more, and you’ve used the full six — the rental stints add together. The ATO counts in days, not anniversaries, so “about six years” is not a planning method.
3. One main residence at a time. While you’re treating the old home as your main residence, you can’t treat any other property as your main residence for the same period — with one exception: when moving between homes, both can be covered for up to six months, provided the old place was your main residence for a continuous 3 months in the year before you sold it.
4. You make the choice at sale time, not before. There’s no form to lodge when you move out. The election happens on your tax return in the income year you sign the sale contract. That also means you can’t “reserve” the choice — it’s a decision you make with full hindsight when you sell.
5. The CGT event date is the contract date. Sign the contract on 28 May and the gain belongs in that financial year, even if settlement happens in July. If your 6-year window closes on 30 May, a contract signed on 2 June is outside it.
The ATO’s guide to treating a former home as your main residence confirms each of these conditions and works through its own example of multiple absence periods.
The trap that catches everyone: you must have lived there first
Search any property forum and you’ll find the same question, asked a dozen ways: “My place has always been an investment property — if I move into it before I retire, does the 6-year rule wipe out the CGT?” The answer is no, and misunderstanding this costs people tens of thousands.
The 6-year rule is an absence rule: it extends an exemption you already had, it doesn’t create one. Rent from day one and move in years later, and the clock only starts at move-in — the earlier rental years stay taxable by day-apportionment, and with no main-residence period before the income use, there’s no market-value cost base reset either (see below).
The mirror-image case matters too: you buy with tenants already in place and plan to move in “soon”. The law covers you from purchase if you move in as soon as practicable after settlement — a few weeks of genuine delay is fine, but collecting rent for a year while you get around to it is not.
Moving back in resets the clock — but it has to be genuine
Here’s the part that makes the rule genuinely powerful: every time the dwelling again becomes and ceases to be your main residence, you get a fresh six-year period. Move out for five years, move back in properly, live there a while, move out again — new clock, with no lifetime limit on re-use.
The catch is the word “genuine”. The law sets no minimum stay, but a token return doesn’t reset anything — owners who “moved back” for five days or two weeks of maintenance between tenancies have had the reset denied. The ATO tests the facts: where your mail went, your electoral enrolment, utilities in your name, how long you stayed. Think months of real living there, not a long weekend with a paintbrush.
The valuation rule nobody tells you about
If you ever exceed the six years, a second rule decides how big your tax bill is — and the evidence for it must be gathered on the day you move out, years before you sell.
When a home that was your main residence is first used to produce income, the tax law deems you to have re-acquired it at its market value on that date (section 118-192). Everything you paid before — purchase price, stamp duty, buyer’s agent fees — drops out of the cost base, replaced by that single market-value figure plus allowable costs incurred afterwards.
This is usually good news: years of tax-free growth while you lived there are permanently locked out of CGT. But it only works if you can prove the market value — so get a formal valuation when the first tenant moves in and keep it with your tax records. A valuer’s report costs a few hundred dollars; reconstructing a market value six years later during an ATO review costs far more.
Worked example: what overshooting the 6 years actually costs
Enough theory. Here’s the full run-through with real 2026-27 figures — the calculation most articles never finish.
Sarah’s story. Sarah bought a Brisbane townhouse in 2015 for $480,000 and lived in it as her main residence. On 1 June 2019 she moved to Sydney for work and rented the townhouse out. A valuer put its market value that day at $610,000 — she kept the report. She never bought another property, so no competing main residence claim.
Her six-year window ran from 1 June 2019 to 31 May 2025. But she didn’t sell until 1 March 2027, for $840,000, with $20,000 in agent and legal fees. She overshot by 21 months. Here’s the tax office math:
Step 1 — Deemed acquisition. For CGT purposes Sarah is treated as having bought the townhouse on 1 June 2019 for $610,000 (the s118-192 market-value reset). Her ownership period runs 1 June 2019 → 1 March 2027 = 2,830 days.
Step 2 — Non-main-residence days. Days past the 6-year limit: 1 June 2025 → 1 March 2027 = 638 days.
Step 3 — Capital gain, then apportion.
$840,000 − ($610,000 + $20,000) = $210,000 total gain.
Taxable portion: $210,000 × (638 ÷ 2,830) = $47,343.
Step 4 — The 50% discount still applies. Sarah held the property for well over 12 months from the deemed acquisition date, so the discount method halves the taxable gain: $47,343 × 50% = $23,671 net capital gain.
Step 5 — The actual tax bill. Say Sarah earned a $110,000 salary in 2026-27: adding the gain makes her taxable income $133,671. Using the 2026-27 tax brackets:
| Without the gain | With the gain | |
|---|---|---|
| Taxable income | $110,000 | $133,671 |
| Income tax | $23,520 | $30,621 |
| Medicare levy (2%) | $2,200 | $2,673 |
| Total | $25,720 | $33,294 |
Extra tax caused by the 21-month overshoot: $7,574. Had Sarah signed the sale contract before 31 May 2025, the bill would have been zero. That’s the dollar value of watching the clock — and of having the 2019 valuation on file, without which the ATO would have worked from her $480,000 purchase price.
Run your own numbers any time with our free CGT calculator — it handles the apportionment and the discount in one go.
What changes on 1 July 2027
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. From 1 July 2027, the 50% CGT discount is replaced for individuals, trusts and partnerships by cost base indexation plus a 30% minimum tax on net capital gains. Gains that accrued before 1 July 2027 keep the old treatment.
Here’s what that means for the 6-year rule specifically:
The rule itself survives. The main residence exemption is explicitly unchanged — sell within your six years after 1 July 2027 and it’s still fully tax-free, exactly as today.
Partial gains get complicated. If you exceed the six years and sell on or after 1 July 2027, the taxable portion of your gain falls under the new regime: indexation instead of the flat 50% discount, with a 30% floor on the effective tax rate. For long-held property with strong real growth, indexation is typically less generous than the old discount.
A pre-July-2027 valuation is now doubly valuable. Because pre-1-July-2027 accrual keeps the old rules, a market valuation dated just before the changeover helps split your gain between the two regimes cleanly. If your absence is already pushing past six years, talk to your accountant about timing before the 2027-28 financial year — the ATO is still publishing operational guidance, so don’t treat any of this as settled detail.
7 common mistakes
1. Assuming it’s automatic. The exemption isn’t granted because you feel the place was your home — it’s a choice you evidence. No proof of genuine residence, no exemption.
2. No valuation when the tenant moves in. The single most expensive omission. Without a market value at first income-producing use, you can’t use the s118-192 reset properly.
3. Nominating another property at the same time. Buy a new home to live in while the old one is rented? You must choose which carries the main residence exemption for CGT — many only discover this when one property sells with an unexpected tax bill. (Couples get one shared choice: spouses and de facto partners are generally treated as having a single main residence between them.)
4. Counting “about six years”. The ATO counts days. A contract signed three weeks after your window closed is fully outside the exemption for those extra days’ worth of gain.
5. Moving overseas and assuming the rule still works. Since 1 July 2020, foreign residents for tax purposes generally lose the main residence exemption entirely when they sell. If you move abroad and become a non-resident, the 6-year rule won’t save you at sale time. Get advice before you leave, not after you list.
6. Confusing CGT with land tax. The 6-year rule is federal CGT law. State land tax is a completely separate system with its own principal-place-of-residence absence rules — winning on CGT doesn’t mean you won’t get a land tax assessment. Check your state revenue office’s rules independently.
7. Forgetting the 2-hectare limit. The exemption covers your dwelling plus adjacent land up to two hectares. Larger holdings get the exemption apportioned.
Checklist: before the tenant moves in
Before the tenant moves in, do these five things:
1. Get a formal market valuation dated as close as possible to the first day of income-producing use. Keep the report forever.
2. Record the exact date you moved out and the date the first tenancy (or listing) began.
3. File your proof of residence: electoral roll history, driver’s licence address changes, utility bills, council rates notices.
4. Note in writing that no other property will be treated as your main residence during the absence — revisit this if you buy again.
5. Keep claiming rental deductions — nominating the property as your main residence for CGT doesn’t stop you deducting interest, rates, insurance and depreciation.
Frequently asked questions
Do I need to tell the ATO before I move out?
No — you make the choice on your tax return in the year you sign the sale contract. But the evidence (valuation, dates, proof of residence) has to be created now; you can’t reconstruct it convincingly years later.
I moved back in for a month between tenants. Does the clock reset?
Almost certainly not. The dwelling must genuinely become your main residence again, and the ATO tests that on the facts: where you lived day to day, where your mail and electoral enrolment were, how long you stayed. Think months of real residence, documented like your original occupancy — not a maintenance stopover.
Can my partner and I each claim a different property?
Generally no. Spouses — including de facto partners — share a single main residence between them for CGT. If you each own a property, you either nominate one as the shared main residence or split the exemption.
Does the 6-year rule apply to units and townhouses?
Yes — any dwelling: houses, units, townhouses, even a caravan or houseboat if it was genuinely your main residence.
I left my home vacant for ten years and never rented it. Any CGT?
If it genuinely wasn’t used to produce income, there’s no six-year limit — you can keep treating it as your main residence indefinitely, provided you didn’t nominate another property instead. The exemption only starts eroding once income-producing use begins.
I’m renting out rooms on Airbnb while still living there. Does that use up my 6 years?
That’s a different problem: partial income use while you live there means the exemption is apportioned by floor area, and it can taint the market-value reset. If any part of your home earns income while you live there, get specific advice.
The bottom line
The 6-year rule is one of the most valuable concessions in Australian tax law: live in a home, move out, rent it for up to six years, sell it tax-free — and reset the clock every time you genuinely move back. The price of admission is evidence gathered early: a valuation on day one of renting, proof you lived there, and a clear choice about which property carries the exemption. Overshoot the window and Sarah’s example is what awaits — apportioned gain, halved by the discount, taxed at your marginal rate. With the 1 July 2027 overhaul changing how partial gains are taxed, now is the time to check where your clock stands. For the broader picture, see our complete guide to CGT on property and how the 50% CGT discount works.
General information only — not personal tax advice. The 2027 reform detail reflects legislation as enacted; the ATO is still publishing operational guidance.
