The CGT 6-Year Rule Explained: How to Legally Pay $0 Tax When You Sell Your Former Home
- It lets you keep treating a former home as your main residence for CGT for up to 6 years after you move out if you rent it.
- If you don't rent it (vacant, family occupying rent-free, holiday use), the exemption is unlimited.
- You can only treat one propertyas your main residence at a time (with a 6-month overlap when you're moving house).
- You can reset the 6-year clock by moving back in as main residence — then moving out starts a fresh 6 years.
- Three things kill it: (1) you never lived in it first, (2) you claim another home as main residence during absence, or (3) you're a foreign tax resident at sale (excluded since 2020).
What the Rule Actually Does
Australia's main residence exemption is one of the biggest tax breaks in the system — your own home, the one you actually live in, is fully exempt from capital gains tax when you sell it. That's the baseline.
The 6-year rule — properly called "treating a former home as your main residence" under Section 118-145 of the Income Tax Assessment Act 1997 — extends that protection to a time after you move out. For up to six years, you can keep the main residence flag on the old place as if you were still living there, even when someone else is paying you rent to live in it.
The ATO lets you choosewhen to apply the flag, too. If you rented the property for five years, you can elect to treat it as your main residence for any portion of those five years — it doesn't have to be the whole block.
The Two Flavours Most People Don't Know About
The single biggest misconception about the 6-year rule is that it always runs out at 6 years. It doesn't. There are two separate regimes hiding in the same section.
| Scenario | Exemption window | Notes |
|---|---|---|
| You move out and rent the property | Up to 6 years | Section 118-145(2). Renewable by moving back in. |
| You move out and DON'T rent it (vacant, family, holiday) | Unlimited | Section 118-145(3). No time limit at all. |
| You rent for 5 years, then vacant for 3, then rent 2 more | Up to 6 years of rental across all periods | The 6-year cap counts only the income-producing time. |
| You move back in for a year, then move out again | Fresh 6-year window | Each absence has its own 6-year cap. |
Does the Rule Apply to You?
Five questions will tell you exactly where you land. Answer each based on your situation — you'll end up at one of six outcomes covering the full rule.
Build Your Own Scenario
Adjust the four variables below to see which years are exempt (lime) and which are taxable (red). The bar animates as you change inputs, and the verdict beneath explains why.
Simplified model — ignores co-ownership, Section 118-192 cost-base uplifts, foreign-residency periods, compulsory absence extensions, and CGT discount interactions. Use it to understand the logic, not to lodge your return.
The Reset-the-Clock Strategy
The 6 years isn't a lifetime cap — it's a per-absence cap. Every time you genuinely re-establish the property as your main residence, a fresh 6-year window becomes available the next time you leave.
"Genuine" is the important word. The ATO looks at the usual tests: where your mail goes, where your licence and car rego are registered, where your personal belongings live, whether utilities are on, whether your family is with you, whether you're on the electoral roll at that address. Staying for a weekend won't cut it.
Two Edge Cases That Trip People Up
The 6-month overlap when you buy a new home
The general rule is you can only have one main residence at any time. The exception is Section 118-140: when you buy a new home and are preparing to move in, you can treat both the old home and the new home as your main residence for up to 6 months. This only works if the old home was your main residence for at least 3 of the 12 months immediately before sale and was not producing income in any part of that period.
Foreign residents — excluded since 2020
If you're a foreign tax resident at the time of the CGT event (sale) — you don't get the main residence exemption, full stop. The exception for foreign residents was removed in the 2017 Budget and took effect for disposals from 30 June 2020. There's a narrow "life-events" carve-out (death of a spouse, serious illness, divorce) but it's tight. If you're considering moving overseas before selling, model this carefully.
The Six Most Common Mistakes
| Mistake | Why it breaks the rule |
|---|---|
| Never lived in it first | The property must have been your main residence before anything else. A property you rented out from day one can't use the rule. |
| Claiming the old home AND the new home | You can only have one main residence at a time (6-month overlap aside). Most people unknowingly tick both boxes in myTax. |
| Assuming 'unlimited if not rented' doesn't exist | Many sellers pay CGT unnecessarily on a vacant former home. The 6-year cap only applies when the property is producing income. |
| Renting for 7 years without resetting | Going one year over the cap taxes 1/7 of the gain. A 3-month move-back would have saved the lot. |
| Assuming weekend stays reset the clock | Reoccupation has to be genuine — mail, utilities, belongings, electoral roll. The ATO looks at substance. |
| Selling after becoming a foreign resident | The exemption evaporates for foreign residents at disposal. Narrow life-events exception only. |
How the Rule Evolved
FAQ
The questions we see most from movers and accidental landlords trying to preserve the exemption.
The Bottom Line
The 6-year rule isn't a loophole. It's a deliberate design choice in Australian tax law acknowledging that people move — for work, for family, for circumstances beyond their control — and their home doesn't stop being their home the day they leave. Used correctly, it turns what could be a six-figure CGT bill into nothing.
Used badly — by nominating two residences at once, by ignoring the rental distinction, or by walking past 6 years without resetting — it quietly erodes the exemption and leaves you with a surprise assessment. The remedy is almost always earlier than later: run your scenario through the tool above, decide which residence to nominate, and keep the evidence that proves your dates.
This article is general information only and does not constitute tax advice. Main residence rules interact with Section 118-192 cost-base uplifts, spousal rules, foreign-residency timing, and inherited property provisions. Get independent advice from a registered tax agent for your specific circumstances.
If you're moving out, renting, or thinking about selling — the calculator folds your exemption potential into a single estimate, alongside depreciation, CGT cost base, and the other deductions you can claim year-round.
Run my numbers →Sources
- Australian Taxation Office — "Treating former home as main residence"
- Australian Taxation Office — "Moving to a new main residence" (6-month overlap guidance)
- Australian Taxation Office — "Eligibility for the main residence exemption"
- Income Tax Assessment Act 1997 — Sections 118-140, 118-145, 118-192, 118-195
- Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 — foreign resident main residence exemption removal
- DPN Advisory — "6-Year Rule & CGT: 2025 Guide"
- Success Tax Professionals — "Main Residence 6 Month Rule"
- Freshwater Taxation — "The 6-Year CGT Exemption Trap"