The 6-Year Rule for Capital Gains Tax: What You Need to Know
When selling your property, Capital Gains Tax (CGT) will have a significant impact on your profit unless of course you qualify for one of the available exemptions.
One of the most useful exemptions for property owners is known as the 6-year rule. It can save you thousands in tax, but it is often misunderstood or missed altogether.
1. What is the 6-Year Rule?
The 6-year rule is a provision under Australian tax law that allows you to treat your former main residence (i.e. the home you lived in) as exempt from CGT for up to 6 years after you move out, even if you start renting it out and it becomes an investment property.
✅ The catch? You must not claim another property as your main residence during that time.
2. How Does It Work?
Here’s how it plays out in practice:
You buy a home and live in it.
After a while, you move out and rent it out.
You don’t claim another property as your main residence.
If you sell the property within 6 years of moving out, you can claim the full CGT exemption, just as if you’d been living there the whole time.
If you move back in at any stage, the 6-year clock resets—more on that below.
💡 Important: If the property is never rented out and remains vacant, there is no time limit—you can claim the main residence exemption indefinitely until you sell.
3. Advantages of the 6-Year Rule
CGT-Free Growth: The value of your property can grow while rented, and you still avoid tax on the gain if sold within the 6-year window.
Flexible Living: It’s useful for people who relocate temporarily for work, try out living elsewhere, or travel.
Investment Strategy: It allows you to convert your home into an investment without triggering CGT straight away.
Resettable: If you move back in, the 6-year period can start again from the day you move out again.
4. Disadvantages & Traps to Watch For
Can’t Have Two Main Residences: You can only treat one property as your main residence at a time. If you buy and live in another home, your CGT exemption on the old one could partially expire.
Partial Exemptions: If you go over the 6-year window, only the gain from the first 6 years will be exempt. The rest is taxable.
Record-Keeping is Crucial: You’ll need to keep good records to prove dates you lived in or rented the property.
Resetting Has Conditions: You must genuinely move back in—not just use it as a mailing address—to reset the clock.
5. Can You Reset the 6-Year Rule?
Yes. If you move back into the property and establish it again as your main residence, you can restart the 6-year rule from zero.
🔄 Example:
You live in a home from 2015–2018
You rent it out from 2018–2023 (5 years)
You move back in during 2023 for 12 months
You move out again in 2024 and rent it
You now have until 2030 (6 years from 2024) to sell it CGT-free
👉 The ATO expects that you genuinely live there—so bring your mail, change your license, and make it your home again.
The 6-year rule can be a powerful tax minimisation tool, especially for anyone who has turned their home into a rental. But it’s also full of technicalities and traps that can cost you if you get them wrong.
If you're unsure about your situation or thinking about moving out and renting your home, it's worth speaking to a tax professional to ensure you're taking full advantage of the CGT exemptions available to you—without accidentally triggering an unwanted tax bill.