Capital Gains Tax 6 Year Rule: The Main Residence Exemption Explained

The capital gains tax 6 year rule lets you rent out your former home for up to six years and still claim the full main residence exemption when you sell — meaning zero capital gains tax (CGT) on the property. Under Section 118-145 of the Income Tax Assessment Act 1997, if you move out of your main residence and start earning rental income from it, you can choose to continue treating it as your main residence for CGT purposes for up to six years.

This is one of the most powerful CGT exemptions available to Australian property owners. While your rental income from the property is taxable each year, the capital gain upon sale may not be — if you sell within the applicable exemption period. Getting it wrong can mean paying tens of thousands in capital gains tax you could have legally avoided. Getting it right means a completely tax-free sale.

How the Capital Gains Tax CGT 6 Year Rule Works

The capital gains tax 6 year rule — formally known as the "absence rule" or "continuing main residence exemption" — is set out in the Australian Taxation Office (ATO) guidelines under Section 118-145 of the ITAA 1997.

Here is how it works:

1. You purchase a property and live in it as your main residence
2. You move out and start using the property to produce income
3. You choose to continue treating the property as your main residence for CGT purposes
4. If you sell within six years of moving out, you pay no capital gains tax

The six year period resets if you move back in, giving property owners flexibility to extend the CGT exemption beyond the initial six year limit.

Key Conditions for the CGT Exemption

To claim the full main residence exemption, your property must meet these criteria:

• You actually lived in it — to qualify for the main residence exemption, the property must have been genuinely lived in as a home, with personal belongings kept there and mail delivered to the address. You cannot claim the exemption on a property you never lived in.
• No other main residence — you cannot treat more than one property as your main residence at the same time. If you buy a new home, you must choose which property qualifies.
• The six year period has not expired — if you rent out your former home for more than six years without moving back in, you lose the full exemption.
• You make the choice — the exemption is not automatic. You elect to treat the property as your main residence when you lodge your annual income tax return.

Full Main Residence Exemption vs Partial Exemption

Understanding the difference between a full and partial main residence exemption is critical for calculating your capital gains tax liability.

When You Get the Full Exemption

You qualify for the full main residence exemption — and pay zero capital gains tax — when:

• You lived in the property as your main residence for the entire ownership period, OR
• You moved out but sold within six years (the six year rule), OR
• You moved back in before the six year limit expired, starting a fresh six year period

In all these cases, the entire capital gain is exempt from your assessable income.

When You Get Only a Partial Exemption

If your property was used to produce income for longer than six years without you moving back in, you receive only a partial exemption. The Australian Taxation Office calculates this based on the proportion of time the property was your main residence versus the time it was used for income producing purposes.

Partial exemption formula:

Exempt portion = (Main residence days + 6 years of absence) ÷ Total ownership days

The remaining portion is a taxable capital gain, added to your assessable income in the year you sell. For a full overview of how CGT applies to property, see our complete guide to capital gains tax on property.

Worked example — partial exemption:

• Purchased 2014 for $550,000; lived in 4 years; rented 9 years; sold 2026 for $850,000
• Total ownership: 13 years; Main residence period (with 6-year rule): 10 years
• Exempt fraction: 76.9%; Capital gain: $300,000; Taxable after CGT discount: $34,650

That $34,650 is added to your taxable income and taxed at your marginal rate. Use the PropBoss Capital Gains Tax Calculator to model your scenario.

How the Six Year Rule Applies to Your Former Home

The most common scenario for the capital gains tax 6 year rule is when property owners move out of their home and rent it out — whether for work relocation, upgrading, or moving interstate.

Scenario 1: Sell Within Six Years (Full CGT Exemption)

Sarah bought a unit in Brisbane for $420,000 in 2019 and lived in it for three years. In 2022, she moved to Sydney for work and rented out the Brisbane unit. She sold it in 2026 for $580,000. If you sell your property within the six-year exemption period and have not nominated another property as your main residence, you can generally claim a full main residence exemption from CGT.

• Time rented: 4 years (within six year limit)
• Full main residence exemption. Zero capital gains tax.
• Capital gain of $160,000 is tax-free; Sarah saves ~$37,240.

Scenario 2: Move Back In, Reset the Clock

James bought a house in Melbourne for $600,000 in 2015. He moved out in 2017, rented it for 5 years, moved back in for 6 months in 2022, then moved out again. He plans to sell in 2027.

• First absence: 5 years (within limit); Moving back in resets the period
• Second absence: 5 years from 2022 (within the fresh six year period)
• Full main residence exemption still applies.

Scenario 3: Exceed Six Years (Partial Exemption)

David bought a townhouse in Perth for $480,000 in 2012. He lived in it until 2015, then rented it out continuously until selling in 2026 — an absence of 11 years.

• Total ownership: 14 years
• Main residence period: 3 + 6 = 9 years
• Exempt fraction: 9 ÷ 14 = 64.3%
• Capital gain: $780,000 − $480,000 = $300,000
• Taxable after CGT discount: $53,550

If David had sold within the six year period, the entire gain would have been exempt — a CGT savings of over $20,000.

Capital Gains Tax and Your Investment Property

The six year absence rule only applies to a property that was genuinely your main residence. It does not apply to a property purchased solely as an investment property. Property investors who buy a property and rent it out from day one cannot claim the main residence exemption — the property was never their principal residence.

However, if you convert your main residence into an investment property, the absence rule can provide significant CGT savings. The key distinction is:

• Former home → rental: the capital gains tax 6 year rule may apply, and you may pay zero CGT
• Investment property from day one: no main residence exemption. The full capital gain is taxable (less the 50% CGT discount if held for 12+ months)

Getting a Market Value at the Time You Start Renting

A professional market valuation should be obtained when the property is first available for rent, as this valuation sets the cost base for future CGT computations. When you start using your main residence for income producing purposes, the Australian Taxation Office recommends getting a professional market valuation at that transition point. This market value becomes the baseline for any future capital gains tax calculation if you lose the full exemption. Without one, you may rely on estimates — which the ATO may challenge.

PropBoss tracks your property's market value over time. Set the initial valuation when you convert your home to a rental, and PropBoss maintains a running record of your tax position and cost base.

The CGT Exemption and Foreign Residents

Since 2020, foreign residents have lost access to the main residence exemption for CGT purposes. This is a critical change that affects Australian property owners who move overseas. The ATO's guidance on CGT for foreign residents outlines these rules in detail.

How Foreign Residents Are Affected

If you are a foreign resident for tax purposes at the time you sell your property, you generally cannot claim the main residence exemption — regardless of how long you lived in the property. The foreign residents benefit that previously existed under the main residence exemption was removed effective 30 June 2020. If a property owner becomes a foreign resident, they must be cautious about the timing of selling their property, as the six-year CGT exemption will not apply, potentially leading to significant tax liabilities.

This means:

• Australian property owners who move overseas and become foreign residents cannot use the six year absence rule
• Even if you lived in the property for 10 years before moving overseas, if you are a foreign resident when you sell, the full capital gain is taxable
• Foreign residents do not receive the 50% CGT discount

Exceptions for Foreign Residents

Foreign residents can only access the six-year CGT exemption under very specific circumstances, often referred to as "life events", which are tightly defined and include serious situations like terminal illness or the death of a spouse. You may still claim the main residence exemption as a foreign resident if:

• You satisfy the "life events" test — your absence is due to terminal illness, the death of a spouse, or certain relationship breakdowns
• You sold the property before 30 June 2020 (grandfathering provisions)

If you are considering moving overseas, selling before you become a foreign resident protects your CGT exemption. Speak with a tax professional about your tax obligations before relocating.

Income Producing Purposes and the Main Residence CGT Exemption

The capital gains tax 6 year rule specifically covers periods where your former home is used for income producing purposes — meaning you are earning rental income from it. But what counts as "income producing"?

What Counts as Income Producing

• Renting the property to tenants (most common)
• Using part of the property as a home office
• Running a business from the property

What Doesn't Reset the Clock

Leaving the property vacant does not use up your six year period. The six year exemption period runs from when you move out, regardless of whether the property is rented or vacant.

However, if a property is left vacant and not rented out, it can be treated as the main residence indefinitely — the six year limit only applies when the property is used to produce income. Most property owners choose to earn rental income because they can claim deductions on expenses like management fees, council rates, and depreciation — while still preserving the six year rule for a tax-free sale.

Land Tax Implications When Renting Your Former Home

When you move out of your main residence and start renting it, the property may become subject to land tax. Each state and territory has different rules:

• Your main residence is exempt from land tax
• Once you move out and rent it, the land tax exemption may be lost
• Some states offer a transitional period or partial exemption

Land tax is a separate tax from capital gains tax. Even if the 6 year rule protects you from CGT, you may still owe annual land tax. Use the PropBoss Land Tax Calculator to estimate your exposure.

How to Maximise Your CGT Savings Under the 6 Year Rule

Smart property owners use several strategies to maximise the tax benefits of the main residence exemption:

1. Track the Six Year Limit Carefully

Keep accurate records of exactly when you moved out. Documentation including meticulous records of occupancy, rental agreements, and evidence of the property being your main residence is essential. The six year period starts from the date you ceased living in the property. Missing the deadline by even one day means losing the full exemption.

2. Move Back In Before Six Years to Reset

If you move back into your property after renting it out, you can reset the six-year exemption period, allowing you to treat it as your main residence for another six years for capital gains tax purposes. When you move back into your property, the six-year exemption period resets, allowing you to rent it out again without incurring capital gains tax on the profit from its sale, provided you do not nominate another property as your main residence during that time.

There is no minimum period specified by the ATO, but you must genuinely re-establish it as your main residence — move your personal belongings back in, update your mail delivery, and treat it as your home. The six year rule can be utilised multiple times, as long as you genuinely move back in each time.

3. Get a Professional Market Valuation Early

If there is any chance you will exceed the six year limit, get a professional market valuation when you first move out. The cost of a valuation ($300–$600) is minor compared to the potential capital gains tax liability.

4. Consider the Timing of Your Property Sale

If you are close to the six year limit, timing the sale before the deadline preserves the full CGT exemption. A tax-free sale on a capital gain of $200,000+ can save $30,000–$50,000 or more at typical marginal rates.

5. Monitor Your Residency Status

If you are moving overseas, selling before you become a foreign resident preserves the CGT exemption.

6. Use PropBoss to Track Everything

PropBoss automatically tracks your property's cost base, rental periods, and market value — giving you a clear picture of your tax position at any time. Set reminders for your six year deadline so you never miss it. Get started with PropBoss free and take control of your capital gains tax planning.

What Is the Capital Gains Tax 6 Year Rule? Common Questions Answered

What is the 6 year rule for capital gains tax?

The capital gains tax 6 year rule allows property owners to treat their former home as their main residence for CGT purposes for up to six years after moving out — even if earning rental income. If you sell within six years, the entire capital gain is exempt under Section 118-145 of the ITAA 1997.

Can I claim the main residence exemption on more than one property?

No. You can only claim the main residence exemption for one property at a time. If you buy a new home after moving out of your former home, you must choose which property qualifies as your main residence for CGT purposes. You cannot treat more than one property as your main residence simultaneously. However, there is a short overlap period allowed when transitioning between properties.

How does capital gains tax work on an investment property?

If you purchase a property purely as an investment, the full capital gain is subject to CGT when you sell. You can reduce the net capital gain by including eligible expenses in the cost base (stamp duty, legal fees, capital improvements). Holding for 12+ months gives you the 50% CGT discount.

What happens if I rent my former home for more than six years?

If you rent your former home for more than six years without moving back in, you lose the full main residence exemption. Instead, you receive only a partial exemption based on the proportion of time it was your main residence (including the six year absence period) versus the total ownership period. The non-exempt portion becomes a taxable gain.

How to avoid capital gains tax on an investment property?

The main legal way to avoid capital gains tax is the main residence exemption. If the property was your main residence and you sell within the six year absence period, the total capital gain is exempt. Other ways to reduce your capital gains tax liability include maximising your cost base with eligible expenses and timing your sale for the 50% CGT discount.

Do foreign residents pay capital gains tax on Australian property?

Yes. Foreign residents who sell Australian property pay capital gains tax on the full gain, without the main residence exemption or the 50% CGT discount. Since 30 June 2020, the foreign residents benefit under the main residence exemption has been removed.

Track Your Capital Gain and Main Residence CGT Obligations with PropBoss

The capital gains tax 6 year rule can save property owners tens of thousands of dollars — but only if you track the key dates and understand your main residence CGT obligations.

PropBoss gives property investors a clear view of their property profits, cost base, tax position, and six year deadline — all in one dashboard.

• Track your cost base automatically (purchase price, stamp duty, legal fees, improvements)
• Monitor rental income and rental periods for each property
• Model CGT scenarios with our Capital Gains Tax Calculator
• Keep accurate records the Australian Tax Office expects

Start tracking your property for free — and never miss a CGT deadline again.

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Written by Jonathan Zuvela, Founder of PropBoss. Last updated: April 2026. This article provides general information only and does not constitute tax advice. Always consult a registered tax professional for advice specific to your circumstances.