The 6-year CGT rule for property investors, explained

The main residence exemption is the biggest tax concession most Australians will ever use: your home is CGT-free. The six-year absence rule extends that shield to a home you’ve moved out of and rented — and it’s one of the most misunderstood provisions we see, usually discovered by sellers three weeks after the contract signed, which is exactly the wrong moment.

The rule in one paragraph

Once a property has genuinely been your main residence, tax law lets you choose to keep treating it as your main residence after you move out. If the property earns income while you’re away (you rent it out), that choice holds for up to six years per absence. If it just sits there — a holiday base, empty, a family member minding it rent-free — there’s no time limit at all. Sell within the protected window and the gain is disregarded entirely, exactly as if you’d never left.

Where the six years actually bites

The clock runs per absence, and it resets. Move out in 2020, rent the house for four years, genuinely move back in during 2024, then leave and rent it again in 2025 — a fresh six-year clock starts. “Genuinely” is doing the work in that sentence: the ATO looks at where your family sleeps, where the mail and electoral enrolment point, utilities in your name, the ordinary indicators of actually living there. A three-week stay between tenants with the furniture still in storage is a story, not a residence.

One main residence at a time. Electing to protect the old home means your new home isn’t your main residence for tax during the overlap. If the old place is likely to produce the bigger gain, that’s the right trade — but it’s a choice you make when you sell (in the return for the sale year), and it should be made by comparing the two gains, not by default. Couples add a wrinkle: spouses share one exemption between them.

Past six years, the maths gets kinder than people fear. If you blow through the window, only the excess period is exposed — and in the common case where the home first earned income after you moved out, a special “first used to produce income” rule resets your cost base to the property’s market value at the date it first earned rent. The taxable gain is measured from there, not from what you paid in 2009. This is why a valuation or solid appraisal from the year you first rented the property is worth keeping forever.

A worked example

Sarah bought an Adelaide house in 2018 for $520,000, lived in it, then took a Melbourne job in July 2021 and rented it out. The house was worth $640,000 at that point (she kept the agent’s appraisal — good).

Sells in June 2027 for $850,000 — inside six years of the 2021 move. If she elects to keep the house as her main residence, the entire gain is exempt. Her Melbourne apartment, if she bought one, is exposed for the overlap — likely a smaller gain, so the election makes sense.
Sells in 2029, eight years out. The exemption covers six of the eight rental years. Her gain is measured from the $640,000 market-value reset, and roughly two-eighths of that gain is taxable — with the 50% CGT discount then halving it. Annoying, not catastrophic, and entirely plannable two years in advance.

That planning is the point. The difference between selling in year six and year seven can be a five-figure tax bill; a sale you can see coming should be timed, not remembered.

What to keep, starting today

The absence rule is claimed years after the facts, so the file wins the argument: the date you moved out and evidence you genuinely lived there first; a market appraisal or valuation from when the property first earned rent; every cost since — interest, rates, insurance and improvements can build the cost base for any taxable slice; and a note of any period you claimed another property as your main residence.

If a sale is on your horizon — this year or in three — the property investor tax service runs the election both ways with your actual numbers, and our tax team handles the return the sale lands in. The six-year rule is generous; it just refuses to be generous retrospectively.

Questions we get about this

Does the six-year rule apply if I never lived in the property?

No. The property must have genuinely been your main residence first — you lived there, mail, utilities, the lot. Buy an investment property and move in years later and you get, at best, a partial exemption for the later period.

What happens if I rent it out for more than six years?

The exemption covers the first six years of each absence. Beyond that, a portion of the gain becomes taxable — usually calculated using the market value of the property when it first started earning rent, not your original purchase price, which softens the blow considerably.

Can my spouse and I each claim a main residence?

Not fully. A couple gets one main residence exemption between them at any time — you either share it across two properties (half each) or nominate one. Running one six-year rule each on two houses simultaneously doesn't work.

I'm moving overseas. Does the rule still help me?

Be careful — foreign tax residents who sell while non-resident are generally excluded from the main residence exemption entirely, six-year rule included, unless narrow life-event exceptions apply. If a sale is likely, the timing of it against your residency is a decision worth thousands.

Where to from here: Accountants for property investors · Tax & accounting — or start online and ask us directly.

General information only — it doesn’t consider your circumstances and isn’t financial product advice. Get advice on your own position before acting; that’s literally what we’re for.