CGT 6-Year Rule Explained: Rent Out Your Home Tax-Free

You move out of your home — for work, for family, to try living somewhere else — and you rent it out. Years later you sell it, and the question lands: do you pay capital gains tax (CGT)? For many Australians the answer is no, thanks to the CGT 6-year rule. Used properly, this rule lets you rent out your former home for up to six years and still sell it completely free of CGT. Used carelessly — or not understood at all — it can mean paying tens of thousands of dollars in tax that was entirely avoidable, or wrongly assuming an exemption that was never available.

This explainer from Trinity Accounting Practice covers exactly how the 6-year rule works: the timelines, the reset mechanism, the one-main-residence-at-a-time trade-off, the cost base reset when you first rent the property, and what happens if you move overseas. For the broader main residence exemption — partial exemptions, the 2-hectare limit, deceased estates and more — see our companion guide to the main residence exemption.

What the 6-year rule actually says

The main residence exemption normally requires the property to be your home. The absence rule — section 118-145 of the Income Tax Assessment Act 1997 — is the exception. Once a dwelling has genuinely been your main residence, you can choose to keep treating it as your main residence after you move out:

• If you rent it out — for up to 6 years per absence.
• If you leave it vacant (or a family member lives there rent-free) — indefinitely, with no time limit at all.

Sell within the covered period and the full main residence exemption can apply: no CGT, and the sale generally does not even need a CGT calculation. The ATO explains the choice on its page about treating a former home as your main residence.

The home-first requirement — the rule’s biggest catch

The 6-year rule only applies to a property that was actually your main residence first. You must have genuinely lived in it as your home before the absence began. This is where many plans fall apart:

• Buy a property, rent it out from settlement, move in later — the 6-year rule cannot cover the rental period before you moved in. The property was an investment first.
• Buy a property and never live in it — no main residence exemption at all, and no 6-year rule.
• “Live” in it for two weeks with a mattress and a Netflix login — the ATO looks at substance: where your mail goes, where you are on the electoral roll, utilities connections, where your family lives, your intention. A token stay generally does not establish a main residence.

The clock, the reset and the repeat

Three timing mechanics make the rule far more flexible than most people realise:

• The 6-year clock runs only while the property earns income. Rent it for three years, leave it vacant for two, rent it again — only the rental years count toward the six.
• Moving back in resets the clock. If you genuinely re-occupy the property as your main residence and later move out again, a fresh 6-year period starts for the new absence. There is no limit on the number of resets, provided each re-occupation is genuine.
• Exceed 6 years of renting in one absence and you lose only part of the exemption — the gain is apportioned, typically by days over the limit (and a market-value reset may apply, below). It is not all-or-nothing.

The trade-off: only one main residence at a time

Here is the catch that turns this from a free kick into a genuine decision. While you treat your former home as your main residence under the absence rule, no other property can be your main residence for the same period (apart from a limited 6-month overlap when changing homes). So if you move out of your Beverly Hills house, buy in Wollongong and live there, you must choose — usually when you sell the first of the two properties:

• Apply the 6-year rule to the former home → the new home is exposed to CGT for the overlapping years; or
• Treat the new home as your main residence → the former home accrues a taxable gain for the rental years.

The right choice depends on which property gained more over the overlapping period. You make the choice in the tax return for the year you sell — which means good records on both properties matter long before any sale.

The market value reset — your hidden friend

A separate rule, section 118-192, applies when you rent out your former home for the first time after 20 August 1996: for CGT purposes, you are generally taken to have acquired the property at its market value on the day it first earned income. Two consequences:

• All the growth while you lived there is locked in tax-free, regardless of what happens later.
• Get a market valuation (or solid agent appraisal evidence) at the date you first rent it out. Doing this years later, retrospectively, is harder and weaker.

Moving overseas — where the rule can evaporate

This is the most dangerous interaction. Since changes that took full effect from 30 June 2020, foreign residents for tax purposes generally cannot claim the main residence exemption at all if they sell while non-resident — including the 6-year rule. Unless a limited “life events test” applies (broadly: terminal illness, death of a spouse or minor child, or family-law divorce/separation, within six years of becoming a foreign resident), an expat who sells the former family home while living overseas may lose the entire exemption — not just the post-departure portion, but the whole gain since purchase.

The status is tested at the time of the sale. Many expats preserve the exemption by selling before they leave, or by waiting until they have genuinely resumed Australian tax residency. If you are overseas or planning to move, this single issue justifies advice before you sign a contract of sale.

Worked example — six years, no CGT

Sarah buys a unit in Kingsgrove in 2016 for $650,000 and lives in it as her main residence for five years. In 2021 her employer relocates her to Brisbane. She moves out, gets the unit valued at $850,000, and rents it out. She rents in Brisbane and does not buy. In 2026 she sells the Kingsgrove unit for $1,050,000.

• The unit was genuinely her main residence first. ✔
• The rental period — five years — is within the 6-year limit. ✔
• She has not treated any other property as her main residence (she rented in Brisbane). ✔
• She is an Australian tax resident at sale. ✔

Result: the full main residence exemption applies. The entire $400,000 gain is tax-free. Had Sarah instead been a foreign resident at sale, or rented the unit for seven years, or bought and nominated a Brisbane home, the answer changes — in the seven-year case, roughly the days beyond the six-year mark become taxable, calculated from the $850,000 market-value cost base, with the 50% CGT discount available on the taxable portion.

A Trinity insight from 22 years in practice

The 6-year rule problems we see at Trinity are almost never about the rule itself — they are about evidence and timing. Clients arrive at sale time without a market valuation from the day the home first earned income, without records proving they genuinely lived there first, or three months after becoming a foreign resident. Our practice habit: the day a client tells us they are moving out of their home and renting it, we open a file — valuation, dates, electoral roll, the lot. That one-hour exercise has saved clients six-figure tax bills more than once. The rule is generous; the evidence requirements are not optional.

What this means for you

• If you are about to move out of your home and rent it: get a market valuation dated to the first day of income — before the tenants move in if possible.
• If you are renting out a former home and approaching year six: diarise the deadline; selling (or moving back in) before it passes can preserve the full exemption.
• If you have bought a new home while renting out the old one: you will need to choose which gets the exemption — keep records on both.
• If you are moving overseas: selling while a foreign resident may forfeit the entire exemption. Get advice before you leave, not after.
• If you rented the property before ever living in it: the 6-year rule does not cover that earlier period — expect a partial CGT calculation.
• If you have moved in and out several times: each genuine re-occupation may reset the clock — your dates are valuable, so document them.

How Trinity can help

Trinity Accounting Practice manages 6-year rule positions from move-out to sale: establishing the main residence evidence, organising the section 118-192 market valuation, tracking the 6-year clock, modelling the choice between two homes, and preparing the CGT calculation and main residence election when you sell. For clients moving overseas, we review the foreign resident exposure before departure and before any contract is signed.

Check your 6-year rule position with the Trinity team →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.