The 6-Year Main Residence Rule (and When It Resets)

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

If you move out of your home and rent it out, you may be able to sell later with no CGT — even though it was an investment property while you were away. This is the main residence absence rule under ITAA 1997 s 118-145, commonly called the 6-year rule.

The core rule

If a dwelling was your main residence and you move out, you can choose to keep treating it as your main residence for CGT purposes. The period you can do this depends on what you do with the property:

• Up to 6 years if you rent it out (it produces assessable income).
• Indefinitely if you leave it vacant (no rental income).

If you sell within those limits and meet the conditions, your entire capital gain is exempt from CGT — the same as if you had never moved out.

The four conditions you must meet

1. The property must have been your main residence at some point. You cannot apply the rule to a property you never actually lived in as your home.

2. You must not treat another property as your main residence during the absence. This is the most common trap. If you buy a new home and it becomes your main residence, Property A loses its exemption for the period of overlap. You must choose which property gets the exemption — you cannot exempt both.

3. The 6-year clock runs per absence period, not per property. If you move back in, the clock resets. A new 6-year period begins when you next move out.

4. The choice is made in the year you sell. You do not lodge an election upfront. When you sell, you decide whether to apply the exemption. Sometimes it is better not to — see the partial exemption section below.

Decision flowchart

• Did you live in the property as your main residence? → No → The rule does not apply.
• Did you live in the property as your main residence? → Yes → Continue.
• Has the property been rented for more than 6 years continuously since you moved out? → Yes → Partial exemption only (see below).
• Has the property been rented for 6 years or less? → Yes → Continue.
• Did you treat another property as your main residence during the absence? → Yes → You must choose which property gets the exemption. You cannot exempt both for the overlapping period.
• Did you treat another property as your main residence during the absence? → No → Full CGT exemption when you sell.

Worked examples

Example 1 — Full exemption

Emma bought her home in 2018 for $600,000 and lived in it until 2022. She then moved interstate for work and rented the property out. In 2027 she sells for $800,000.

• Absence: 5 years (under the 6-year limit).
• She did not buy another home or treat another property as her main residence.
• Result: Full CGT exemption. The $200,000 capital gain is entirely tax-free.

Example 2 — The 6-year clock resets

Tom moved out of his home in 2019 and rented it for 4 years. In 2023 he moved back in for 6 months, then moved out and rented it again.

• First absence: 4 years (within 6-year limit).
• He moved back in — the clock resets.
• Second absence: starts in 2023. He has until 2029 to sell with full exemption on the second absence period.
• Result: Full exemption is available, provided he sells by 2029 and does not claim another main residence.

Example 3 — Failed exemption (bought a second home)

Sarah moves out of Property A in 2021 and rents it out. In 2023 she buys Property B and moves in, treating it as her new main residence.

• From 2023 onwards, she has two properties: A (rented) and B (lived in).
• She cannot exempt both for the period from 2023.
• She must choose: Property A or Property B gets the main residence exemption for each period of ownership.
• If she nominates Property B as her main residence from 2023, Property A is only exempt for the period 2021–2023 (2 years). The gain from 2023 onwards on Property A is taxable.

Partial exemption: when you have been away more than 6 years

If you rented the property for longer than 6 years without moving back in, you do not get a full exemption. The exempt portion is calculated proportionally:

Exempt portion = (days as main residence + days covered by the 6-year rule) ÷ total ownership days

Example: You owned a property for 15 years. You lived in it for 5 years, then rented it for 10 years without moving back.

• Days as main residence: 5 years
• Days covered by the 6-year rule: 6 years
• Total: 11 out of 15 years = 73.3% exempt
• Only 26.7% of the capital gain is assessable — and that 26.7% is then eligible for the 50% CGT discount if you held for more than 12 months.

So on a $300,000 gain: $80,100 (26.7%) is assessable, then halved to $40,050 after the discount. You pay tax on $40,050, not $300,000.

Interaction with negative gearing

While the property is rented, you can claim rental expenses including mortgage interest as deductions — even while relying on the main residence exemption for CGT purposes. You are entitled to both benefits simultaneously:

• Claim interest, depreciation, and other rental expenses against your income each year (negative gearing if costs exceed rent).
• Claim the full CGT main residence exemption when you sell.

The ATO does not prohibit this combination. It is explicitly contemplated by the legislation. However, keep clean records: the ATO scrutinises rental deductions on properties where owners later claim the CGT exemption.

Key points

• The absence rule is a choice, not automatic. You elect it when you lodge the return for the year you sell.
• Renting the property caps the absence period at 6 years per absence.
• Moving back in — even briefly — resets the 6-year clock for a new absence.
• You cannot simultaneously exempt two properties as your main residence, except for a limited 6-month overlap when changing homes.
• If you have been away more than 6 years, calculate the partial exemption before assuming you have a large tax bill — it may still be modest after the 50% discount.

If you are close to the 6-year limit, planning to buy another property, or unsure which property to nominate as your main residence, get advice from a registered tax agent before you sell.