CGT · Guide

CGT 6-Year Absence Rule Australia 2025-26

The 6-year absence rule (Section 118-145 ITAA 1997) lets you rent out your former home for up to 6 years while keeping its main residence CGT exemption. It resets when you move back in and can be used more than once.

s118-145 ITAA 1997Reset MechanicsPartial Exemption Maths

How it works

How the 6-Year Rule Works

The starting point: your principal place of residence (PPOR) is exempt from capital gains tax when you sell. If you move out and start renting the property, ordinarily that exemption would end and future growth would be taxable. Section 118-145 gives you an option: you can elect to treat the property as your main residence for up to 6 years of absence.

During that 6-year window:

→ You can rent the property out and collect income (which is still assessable at your marginal rate)

→ You can claim all the normal rental deductions — loan interest, rates, insurance, depreciation, negative gearing

→ If you sell within 6 years of moving out, the sale is 100% CGT-free

→ If you move back in before 6 years are up and re-establish main residence, the clock resets

The cost of this concession: you can't also claim the main residence exemption on another home you've moved into. You choose one main residence for CGT purposes. This matters most if you've bought a new home after moving out.

Non-income use

If the Property Isn't Rented Out

If you move out but don't rent the property — keeping it vacant, letting family stay rent-free, using it as a holiday house — the exemption is unlimited in time. The 6-year cap only kicks in when the property produces income.

This is an important distinction often missed. A military officer posted overseas for 10 years who leaves their home vacant could sell tax-free on return. The same officer who rented the home out for 10 years to fund the posting would be partially taxed on the excess over 6 years.

"Holiday use" by the owner occasionally during the absence generally doesn't break the exemption, but evidence matters — you're claiming the property is your main residence, so treat it like one.

Clock reset

Resetting the 6-Year Clock

A later income-producing absence can attract a new 6-year period if the earlier absence ended and the property genuinely became your main residence again. Main-residence status is determined from the facts, including how and where you lived; there is no published fixed minimum stay that guarantees a reset.

Practical example: a teacher on 4-year country placements could use this pattern:

→ Buy and live in Sydney home, years 1–3

→ Move to country posting, rent Sydney home, years 4–7 (within 6 years — all exempt)

→ Return to Sydney for 6 months, re-establish main residence, year 8

→ Move again, rent out years 9–14 (fresh 6-year clock — still all exempt)

→ Sell at year 15 — 100% CGT exempt across the entire ownership

A short stay does not create an automatic safe harbour. Keep evidence showing the property genuinely became your home again before relying on a fresh absence period.

Partial exemption

When You Exceed 6 Years: Partial Exemption

If you're absent more than 6 years and sell, the exemption doesn't vanish — it's apportioned. The taxable portion of the capital gain is calculated based on the non-exempt days divided by total ownership days.

The "home first used to produce income" rule

Section 118-192 applies: when you first start using a main residence to produce income, the property is deemed to be acquired at market value on that day for CGT purposes. This resets the cost base to the market value on the day you first rented it out, so your taxable gain only accrues from that point.

Worked example

Sarah buys her home in 2010 for $500,000. She moves out in 2018 and rents it. In 2018 the property is worth $800,000. She sells under a contract dated 30 June 2027 (9 years of absence, 3 years beyond the 6-year window) for $1.4 million.

Market value on first income date (2018) $800,000 — new CGT cost base under s118-192

Sale price $1,400,000

Gross gain $600,000

Exempt period (first 6 of 9 absence years) 6/9 × $600,000 = $400,000 exempt

Taxable portion 3/9 × $600,000 = $200,000

After 50% CGT discount $100,000 taxable

Tax at 37% marginal $37,000

A disposal after the 6-year period creates a taxable fraction for the excess days; the amount grows as the excess period grows. Use actual calendar dates and the CGT event date rather than rounding the absence to whole years.

One main residence rule

The "Only One Main Residence" Trap

You can only have one main residence for CGT purposes at a time. If you've moved out of Property A and bought Property B, you have to choose at the time of sale which one the exemption applies to.

Young family upsizes

Keep the old apartment as a rental and buy a new family home. If you continue treating the apartment as the main residence, the new home generally cannot receive the exemption for the same period, apart from the limited moving-home overlap.

Defence force posting

Couple owns Perth home, posted to Canberra, rents Perth out and rents in Canberra. Perth home stays CGT-free under 6-year rule. No Canberra home to compete.

Sea change

Retire from Melbourne, buy coastal home in Qld, rent Melbourne. You must decide when selling which one claims the exemption — run the numbers on both.

You only lock in this choice when you sell. You can claim the exemption retroactively on whichever property produces the better outcome, but you must be able to substantiate the main residence status of whichever you choose.

Non-residents

Foreign Residence Changes (From 2020)

From 30 June 2020, non-residents selling their former Australian main residence generally cannot claim the main residence exemption — even if they lived there for decades and the 6-year rule would otherwise apply.

Life events can preserve partial access: terminal illness, death of spouse/minor child, divorce. These are the "life events exception" — narrow, specific, and require evidence. Ordinary employment-driven overseas postings don't qualify.

Key action: if you're contemplating an overseas move and may sell while overseas, consider selling before you become non-resident. Selling while still an Australian resident preserves the main residence exemption including the 6-year rule.

Records

Records You Must Keep

The ATO can request evidence years after the sale. Maintain:

→ Purchase contract and settlement statement — for the property

→ Evidence of genuine main residence — before each absence — utility bills, driver's licence, electoral enrolment, mail, personal effects

→ Dates of each absence — when you moved out, when you moved back in

→ Rental agreements during absences — dates, rent received, agent records

→ Market valuation on the first day of rental — for s118-192 cost base reset

→ Details of any other property owned — during absences — these are the alternatives if the ATO challenges your election

Common mistakes

Common Mistakes

→ Claiming the rule on a property you never genuinely lived in — The pre-absence main residence test is real. An investment bought as a rental from day one does not qualify, no matter how brief a 'move-in' you stage.

→ Double-dipping — Trying to claim the exemption on two properties simultaneously. You can only have one main residence.

→ Rounding the 6-year period — The calculation uses actual dates. Days after the calendar 6-year period form part of the taxable fraction.

→ Not getting the first-income-use valuation — Where s 118-192 applies, market value on the first income-producing date becomes the cost base. Keep evidence supporting that historical value.

→ Assuming a brief return automatically resets the clock — There is no fixed safe-harbour stay. The facts must show the dwelling genuinely became your main residence again.

→ Losing Australian residency — Leaving Australia, becoming non-resident, then selling — removes the exemption entirely in most cases.

FAQ

What is the CGT 6-year rule?

The CGT 6-year absence rule (Section 118-145 ITAA 1997) lets you treat a former principal place of residence as your main residence for up to 6 years while it's rented out — preserving the CGT exemption when you eventually sell. You can reset the 6-year clock by moving back in before the period expires.

Can I claim the 6-year rule for multiple properties at once?

No. You can only have one main residence for CGT purposes at any time. If you buy and move into a new home while your former home is rented under the 6-year rule, you must choose which property gets the exemption — you can't claim both simultaneously.

Does the 6-year clock reset if I move back in?

A later income-producing absence can have its own 6-year period if the earlier absence ended and the dwelling genuinely became your main residence again. The ATO does not publish a fixed minimum stay; the surrounding facts must establish that it was again your home.

What if I'm absent for more than 6 years?

The exemption only covers the first 6 years of an income-producing absence. Beyond that, the period after year 6 is taxable. Where the home-first-used rule applies, the cost base is market value when the home was first used to produce income—not its value at the 6-year cutoff—and the gain is apportioned over the period from that deemed acquisition date.

Do I need to own another home during the absence?

No — but if you do own another home and claim the 6-year rule on the former property, you can't also claim the exemption on the home you're living in. You choose one. For renters who move between cities for work, this is usually straightforward. For homeowners who buy in each new city, the choice has tax consequences.

Can I rent out the property for income during the absence?

Yes. The 6-year rule is specifically designed for absent-and-rented scenarios. You can earn rental income, claim deductions (including negative gearing), and still preserve the CGT exemption on sale. If the property is not income-producing during absence, an unlimited exemption applies instead of the 6-year cap.

What if I move overseas?

The 6-year rule still applies if you remain an Australian tax resident. However, if you become a non-resident and sell while non-resident (from 30 June 2020 onward), you lose the main residence exemption entirely under the foreign resident CGT changes. Life events like bereavement, terminal illness, divorce, or family death can preserve partial access — check with an adviser.

Can I claim this on a property I never lived in?

No. You must have genuinely established the property as your main residence before the first absence begins. Moving in for a few weeks purely to claim the exemption doesn't satisfy the 'genuine main residence' test. The ATO looks at connection of services, electoral enrolment, mail, and actual time lived in.

How does the 6-year rule interact with the 50% CGT discount?

If you're absent for more than 6 years, the taxable portion of the gain is calculated, then the 50% discount applies (provided you've held the property over 12 months and are an Australian resident at sale). For the first 6 years of absence, the gain is fully exempt — no discount needed.

What records should I keep?

Records of move-in date, move-out date (for each absence), rental agreements during the absence, evidence of main residence election (utility bills, electoral rolls, mail), details of any other properties owned during the absence, and records of move-back-in dates if you reset the clock. The ATO can request these years after the sale.

Tax Accuracy & Sources

Reviewed: March 2026 · Tax year: 2026-27

This guide explains the former-home choice and the s 118-192 home-first-used market-value rule for pre-reform disposals through 30 June 2027. Complex situations including foreign residency, multiple main-residence choices, multiple absences and partial floor-area use are not calculated here.