Skip to content

The CGT six-year rule explained

The CGT six-year rule is a specific exemption within the main residence framework. It allows you to rent out your former main residence for up to six years while retaining the main residence CGT exemption - provided you don’t claim another property as your main residence during that period.

The basic rule

Once a property has been your main residence, you can treat it as your main residence for CGT purposes for up to 6 years after you stop living there, if:

  • It is rented out (or left vacant) during that period
  • You don’t claim another property as your main residence during the same period

If you move back in within the 6-year window, the clock resets. You can later move out again, and start a new 6-year window.

Who uses this rule

1. Temporary relocations. You move interstate or overseas for a 4-year work assignment. You rent out your Sydney home. When you return 4 years later, you move back in. No CGT on the eventual sale.

2. Strategic upgrading. You buy a second property but don’t claim it as your main residence. Instead, you continue claiming the first property as main residence. You can rent out the first property, generate rental income, and the eventual sale is CGT-free (within 6 years).

3. Sabbaticals and extended travel. Six-month or two-year travel periods where you rent out your main residence. On return, you resume occupation and eventual sale remains CGT-exempt.

The critical caveat: you can only claim ONE main residence at a time

If you own two properties during the 6-year window and claim one as your main residence, the other loses its exemption for the overlapping period.

Example:

  • 2020: Buy Property A, live in it (main residence)
  • 2023: Move to Property B, rent out Property A
  • 2023-2025: Claim Property B as main residence
  • 2025: Sell Property A

For 2023-2025, you claimed B as main residence, not A. The gain on A during 2023-2025 is therefore taxable. You cannot double-claim.

Alternatively, you could claim A throughout, treating B as a non-main-residence investment. You’d pay CGT on B’s eventual sale but preserve A’s full exemption.

The optimal choice depends on which property has higher capital growth potential in that period.

Rental income and tax

During the 6-year window:

  • Rental income is assessable as normal income
  • Deductions (interest, rates, repairs) apply normally
  • Depreciation applies normally
  • Negative gearing applies normally

The only difference is that at sale, the capital gain is exempt (if within 6 years and the property has been treated as main residence).

Restart the clock

If you move back into the property within the 6-year window, a new 6-year window starts the next time you move out. In theory, you could rent out, move back, rent out again, and repeatedly benefit from the exemption.

In practice, the ATO looks at whether your re-occupation is genuine. A one-week stay followed by moving out again would not satisfy the test.

Genuine re-occupation requires:

  • At least 3-6 months of actual habitation
  • Utility bills in your name
  • Mail redirected to the property
  • Occupation treated as your main residence (not a holiday)

The 6-year limit

Beyond 6 years, the exemption caps. From year 7 onwards, any capital growth is taxable on a pro-rata basis.

Example: property worth $600k when you moved out, now worth $1m after 8 years. Exempt for 6 years (to year 6 value ~$900k assuming steady growth). Taxable for 2 years ($100k of gain over the final 2-year period). CGT after 50% discount, at 37% marginal: ~$18,500.

Non-resident complications

If you leave Australia and become a non-resident for tax purposes, and you sell while still non-resident, the CGT main residence exemption generally does not apply (post-2019 reforms) regardless of the 6-year rule.

Narrow exceptions apply for specific life events (death, terminal illness, divorce) and for expats who return to Australia and become residents again before selling.

Strategic application

The 6-year rule is a valuable tool for:

  • Career mobility - accept interstate or overseas roles without triggering a property sale
  • Life stage transitions - children leaving home, temporary relocation to be near family
  • Property upgrades - rent out the old home while settling into the new one, then sell the old home within 6 years of moving out

It requires:

  • Conscious tax planning at the time of moving out
  • Good documentation (dates, evidence of main residence treatment)
  • Coordinated structure if owning other property

The documentation test

The ATO’s interpretation of main residence is fact-based. If audited, you need:

  • Records of actual residence (dates of occupation)
  • Utility bills evidencing habitation
  • Rental ledger during the rented period
  • Tax returns treating the property as main residence (declaring the rental income but not claiming another property as main residence)

The 6-year rule is underused by many owners who assume they must “pick one” at any given time. The truth is that the rule gives you a 6-year window of genuine flexibility.