When it comes to selling property, Capital Gains Tax (CGT) is often one of the biggest considerations. The good news is that the Australian Tax Office (ATO) provides generous concessions for your main residence, and one of the most valuable is the 6-year rule.
This rule can potentially save you thousands of dollars in tax if you move out of your home and decide to rent it.
What is the 6-Year Rule?
The 6-year rule allows you to continue treating your former home as your main residence for CGT purposes for up to six years after you move out, provided:
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The property was genuinely your main residence before you moved out.
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You don’t nominate another property as your main residence during the same period.
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The property is sold within 6 years of being income-producing (e.g., rented out).
If these conditions are met, you may qualify for a full CGT exemption on the sale.
How Does It Work?
Let’s break it down with a simple example:
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You buy a house in 2016 for $500,000 and live in it as your main residence until 2020.
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In 2020, you move out and rent the property.
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In 2025, you sell the property for $800,000.
Result:
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Total capital gain = $300,000 ($800,000 – $500,000).
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Because you sold it within 6 years of renting it out, the entire $300,000 gain is CGT exempt
Now, let’s extend the example:
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Suppose you instead sell the property in 2028, meaning it was rented for 8 years.
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The 6-year rule only covers 6 of those 8 years, so you must apportion the gain:
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Ownership period: 12 years (2016–2028)
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Exempt period: 10 years (4 years as residence + 6 years under the rule)
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Taxable period: 2 years
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So, only 2/12 of the gain is taxable.
Moving Back In – The Reset
Another useful feature: if you move back into the property and make it your main residence again, the 6-year clock can reset. If you later move out and rent again, a fresh 6-year exemption period may apply.
Key Considerations
Before relying on the 6-year rule, keep these points in mind:
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If you leave the property vacant, the main residence exemption can apply for an unlimited period.
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You can only choose one main residence at a time (apart from a short 6-month overlap when changing homes).
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If you used part of the home for income while living there (e.g., a home office or boarder), you may only qualify for a partial exemption.
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Keep records of your dates and valuations—especially when the property is first rented out.
Is the 6-Year Rule Right for You?
The 6-year rule can be a powerful tool to minimise or even eliminate CGT on the sale of your home. However, because everyone’s circumstances are different, it’s important to get tailored advice.
At The Taxation, we specialise in helping clients navigate property tax rules to ensure they get the maximum benefit while staying compliant with ATO requirements.
📞 Contact us today to discuss your property situation and see how the 6-year rule could work for you.
