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Main Residence Exemption 6 Year Rule: Complete Australian Guide
The main residence exemption 6 year rule lets you rent out your former home for up to six years and continue treating it as your principal place of residence for capital gains tax (CGT) purposes. If you sell within that window — and you haven’t nominated another property as your main residence during the same period — you pay zero CGT on the sale. This rule, legislated under Section 118-145 of the Income Tax Assessment Act 1997, is one of the most valuable tax concessions available to Australian property investors.
What Is the Main Residence Exemption?
Main Residence Exemption: A CGT exemption that allows Australian homeowners to sell their primary residence without paying capital gains tax, provided the property was their genuine home throughout the ownership period.
When you sell your family home — what the ATO calls your principal place of residence (PPOR) — you generally pay no CGT on the profit. This is because you’re not using that home to generate income; you’re simply living in it.
The exemption is substantial. In 2023–24, the federal government’s revenue foregone from the main residence exemption was estimated at $47.5 billion — making it one of the largest tax concessions in the Australian system.
The full exemption applies when:
- The property was your main residence for the entire period you owned it
- It wasn’t used to produce income (no renting, no running a business from the property)
- It sits on land of 2 hectares or less
- You are an Australian tax resident
If your situation doesn’t meet all of these conditions, you may still qualify for a partial exemption — or the 6 year rule might bridge the gap.
What Is a Principal Place of Residence (PPOR)?
PPOR (Principal Place of Residence): The property the ATO recognises as your main home. Only one property can be your PPOR at any given time.
The ATO doesn’t require a specific minimum period of residence. Instead, they look at a combination of factors to determine whether a property genuinely was your home:
- You and your family lived there day-to-day
- Your personal belongings were kept at the property
- Mail, bank statements, and government correspondence was delivered there
- You were registered on the electoral roll at that address
- Utility accounts (gas, electricity, internet) were connected in your name
All of these factors are assessed together. The ATO also considers your intentions when you moved in — which matters in situations where someone lived in a property only briefly before renting it out.
One property at a time. There’s an important limitation: you can only hold one PPOR at a time. The only exception is a six-month overlap period, which the ATO allows when you’ve bought a new home but haven’t yet sold your old one.
What Is the Main Residence Exemption 6 Year Rule?
The 6 year rule is a temporary absence provision that extends your main residence exemption after you move out of your home and rent it out.
In plain terms: if you lived in a property as your PPOR and then moved out to rent it, the ATO allows you to continue treating it as your main residence for CGT purposes for up to six years. If you sell within that window, the entire capital gain is generally exempt from tax — the same as if you’d never moved out.
The rule applies whether you’re renting elsewhere, staying with family, or living overseas. You don’t have to be living in a property you own for the 6 year rule to continue protecting your old home.
The key conditions are:
- The property must have been your genuine PPOR before you moved out — you can’t rent first and then move in to “claim” the exemption
- You can’t treat any other property you own as your main residence for the same period
- The property must be used to produce income (rented out) — if it’s sitting vacant, the exemption continues indefinitely without the six-year cap
This rule is particularly relevant for property investors who moved out of their first home before buying another one, or who relocated interstate or overseas for work.
For a broader look at how CGT exemptions interact with different property scenarios, see our guide on 7 scenarios that affect your main residence CGT exemption.
How the 6 Year Rule Works: Key Components
| Component | What It Means |
|---|---|
| Initial requirement | The property must have been your genuine main residence before you moved out |
| When the clock starts | The day you first make the property available for rent |
| The six-year window | Six cumulative years of income-producing absence per period |
| No other main residence | You cannot nominate another property as your PPOR for the same period |
| Vacant property | If left vacant (not income-producing), the exemption continues indefinitely |
| Resetting the clock | Move back in and re-establish the property as your home → clock resets |
| Selling | Must sell (sign the contract) within the six-year window for full exemption |
Eligibility: Who Can Use the 6 Year Rule?
To qualify for the main residence exemption 6 year rule, you need to meet the following criteria:
1. Australian tax resident You must be an Australian resident for tax purposes when the CGT event occurs (when you sign the sale contract). Since 1 July 2020, foreign residents are generally not entitled to claim the main residence exemption — including the 6 year rule. See the section on foreign residents below for detail.
2. Property was your PPOR first The property must have been your main residence before you moved out and rented it. You cannot establish eligibility by moving in after renting it out. If you purchased the property as an investment and never lived in it, the 6 year rule does not apply.
3. No simultaneous main residence While you claim the 6 year rule on your former home, you cannot treat another property you own as your main residence for the same period. If you buy a new home and move in, you need to choose which property gets the exemption — you can’t claim both.
4. Property is used to produce income If you move out and rent the property, the six-year limit applies. If you move out but leave the property vacant (no rental income), you can treat it as your PPOR indefinitely, provided you don’t nominate another property as your main residence.
5. Property held in your name The 6 year rule applies to individuals. It does not extend to properties held in a company or trust structure.
How to Claim It: Practical Scenarios
Scenario 1: Relocating interstate for work
Ben lives in his Melbourne apartment for three years, establishing it as his PPOR. He accepts a two-year contract in Brisbane and decides to rent out the apartment rather than sell it. He rents privately in Brisbane and doesn’t buy another property.
Two years later, he sells the Melbourne apartment.
Outcome: Ben’s rental period (two years) is well within the six-year window. Provided he didn’t treat another property as his main residence during that time, the full main residence exemption applies. Ben pays $0 in CGT.
Scenario 2: Extended overseas work placement
Sophie and her husband lived in their Sydney home for four years. They accepted a five-year posting overseas, rented out their Sydney property, and didn’t buy a new home during the five years away.
Five years later (while still overseas), they sign a contract to sell.
Outcome: Five years is within the six-year window. As long as they didn’t nominate another property as their PPOR and they remain Australian tax residents, the sale is fully exempt from CGT.
Caution: If they become foreign residents for tax purposes while overseas, the main residence exemption may not apply. This is a common trap — see the foreign residents section below.
Scenario 3: Resetting the clock
Jez purchased a house in 2005 and moved in immediately. In 2014 he moved out for work and rented the house for five years. In 2019 he moved back in and lived there for two years. In 2021 he moved out again and rented the house for a further three years. He sold in 2024.
Outcome: Per the ATO’s guidance, the six-year limit applies separately to each period of absence after Jez lived in the property. His first rental period (five years) is within the limit. His second rental period (three years) is also within the limit. Both periods are exempt, and Jez pays $0 in CGT on the sale.
Scenario 4: What if you exceed six years?
Going over the six-year limit doesn’t mean you lose the exemption entirely — it means you face a partial CGT bill, calculated on a pro-rata basis.
The “home first used to produce income” rule applies when you exceed the limit. The ATO treats the property as if you acquired it on the day it first became available for rent, at the market value on that date. Your cost base for CGT purposes resets to that figure.
Worked example (based on ATO guidance):
Roya bought an apartment for $180,000 and immediately lived in it. She moved out on 29 September 1999 and rented it out — at that time, the property’s market value was $220,000. She continued renting it until she sold on 29 September 2024 for $555,000. She incurred $15,000 in selling costs.
- Deemed acquisition date: 29 September 1999 (when she first rented it out)
- Deemed cost base: $220,000 (market value at time of first renting)
- Capital gain: $555,000 − ($220,000 + $15,000) = $320,000
- Exempt period: 29 September 1999 to 29 September 2005 (6 years)
- Non-exempt days (over the limit): 30 September 2005 to 29 September 2024 = 6,940 days
- Total ownership days (from deemed acquisition): 9,133 days
- Assessable capital gain: $320,000 × (6,940 ÷ 9,133) = $243,162
- After 50% CGT discount: $243,162 × 50% = $121,581
Roya must include $121,581 as a net capital gain in her tax return.
This is why a formal market valuation on the day you first rent the property is critical. If you don’t have one, the ATO may calculate your cost base using methods that aren’t favourable to you — potentially costing you far more in tax.
For a full explanation of how CGT is calculated, see our guide on how to calculate capital gains tax.
The Vacancy Exception: Indefinite Exemption
Here’s a nuance that surprises many property owners: if you move out but don’t rent your former home, the six-year cap doesn’t apply.
If the property sits vacant — or is used as a holiday home without generating income — you can treat it as your main residence indefinitely. There’s no time limit. The only condition is that you can’t nominate another property as your main residence during that period.
The six-year clock only starts ticking on the first day the property is genuinely made available for rent (i.e., when it becomes income-producing).
What About Rental Deductions?
This is one of the most commonly asked questions from investors.
When you rent out your former home under the 6 year rule, you can claim rental property deductions in your annual tax return — interest on your loan, property management fees, council rates, insurance, and repairs. You must also declare the rental income.
The 6 year rule is a CGT provision. It applies when you eventually sell the property and determines whether the capital gain is exempt. Claiming rental deductions doesn’t prevent you from also using the 6 year rule for CGT purposes when you sell.
What it does affect is your cost base if you exceed the six-year window. Costs you’ve claimed as deductions can’t also be added to the cost base. Your accountant can help you navigate this.
For more detail on investment property tax deductions and structuring your investment, see our investment property tax guide or speak with our property tax accounting team.
Capital Improvements and the Cost Base
If you undertake capital improvements while the property is rented out — a new kitchen, bathroom renovation, or structural addition — those costs are generally added to your cost base.
A higher cost base means a smaller capital gain, which is particularly useful if you sell after the six-year period expires and face a partial CGT bill.
Example: Your deemed cost base at the time you first rented the property was $500,000. You spent $60,000 on a bathroom renovation and kitchen upgrade during the rental period. Your cost base becomes $560,000. When you sell, $60,000 less of your sale proceeds will be subject to CGT.
Keep all receipts, invoices, and bank records related to capital improvements. This is not optional — it’s the evidence the ATO will want if your return is reviewed.
The Foreign Residents Rule Change
Before 1 July 2020, Australian residents living overseas could use the 6 year rule to sell their former home CGT-free. That changed.
From 1 July 2020, foreign residents are generally not eligible to claim the main residence exemption — including the 6 year rule — when they sell Australian residential property.
The only exceptions are narrow “life events” circumstances: a terminal medical condition, the death of a spouse or child, or divorce/separation. These are tightly defined.
What this means practically:
- If you’re planning to move overseas and become a non-resident for tax purposes, consider selling your home before you leave.
- If you’ve already moved overseas and are renting your former home, get specialist advice on your residency status for tax purposes before you sell.
- The issue isn’t where you physically live — it’s your tax residency status at the time the CGT event occurs (when you sign the sale contract).
The “No Other Main Residence” Rule in Practice
This condition catches many investors off guard.
While you’re claiming the 6 year rule on your former home, you cannot nominate any other property you own as your main residence for the same period. This is a one-property-at-a-time rule.
Scenario where this becomes complex:
You move out of your Sydney apartment and rent it out in 2020. In 2022, you buy a new home in Melbourne and move in. For the period from 2020 to 2022, the 6 year rule covers your Sydney apartment. But from 2022 onwards, you have a choice:
- Nominate your Sydney apartment as your main residence → your Melbourne property is not exempt for that period
- Nominate your Melbourne property as your main residence → the 6 year rule stops applying to your Sydney apartment from 2022
When you eventually sell the Sydney apartment, only the period it was your PPOR (before 2020) and the period covered by the 6 year rule (2020–2022) will be exempt. Any period after you nominated Melbourne as your main residence will be subject to CGT.
This is a significant financial decision. If you’re in this situation, speak with a tax specialist before you make any choices about nominating your main residence — the decision is made at the time you lodge your tax return for the year of sale, but planning in advance matters.
Record Keeping: Protecting Your Claim
Your claim is only as strong as your documentation. The ATO can audit CGT exemption claims, particularly on higher-value properties or where the timeline looks unusual.
Documents you need to prove the property was your main residence:
| Document | Why It Matters |
|---|---|
| Electoral roll registration at that address | Strong evidence of genuine residence |
| Utility bills (gas, electricity, internet) in your name | Shows active occupation |
| Bank statements sent to that address | Proves it was your home address |
| Driver’s licence with that address | Official ID evidence |
| Home & contents insurance listing it as your primary residence | Shows how you treated the property |
| School enrolment records (if applicable) | Family residence evidence |
Documents you need to cover the rental period:
| Document | Why It Matters |
|---|---|
| Tenancy agreements and lease documents | Shows start of rental and rent amount |
| Property manager statements | Rental income and expense records |
| Tax returns declaring rental income | Confirms you reported the income |
| Receipts for capital improvements | Supports cost base claims |
The single most important document: a market valuation. Get a formal, written valuation from a licensed valuer on the exact date the property first became available for rent. If you ever exceed the six-year window, this valuation becomes your deemed cost base. Without it, the ATO uses methods that may not be in your favour.
Combining the 6 Year Rule With Other CGT Strategies
The 6 year rule works well alongside other CGT reduction strategies:
50% CGT discount: If you own the property for more than 12 months before selling, you’re generally entitled to a 50% CGT discount on any assessable capital gain. This applies even if only a portion of the gain is assessable (i.e., you exceeded the six-year window). The discount can halve a significant tax liability.
Negative gearing during the rental period: While the property is rented, you may be able to negatively gear the property — offsetting the rental loss against your other income. This doesn’t affect your CGT exemption claim when you eventually sell. Read more about negative gearing.
Timing the sale: If you’re approaching the six-year mark and haven’t moved back in, your accountant may recommend either: (a) selling before the six-year window closes to maintain the full exemption, or (b) moving back in to reset the clock and start a fresh six-year period.
Key Takeaways
The main residence exemption 6 year rule is a powerful tool for property investors who were once owner-occupiers. Here’s what to keep in mind:
- Live there first. The property must have been your genuine PPOR before you moved out and rented it.
- Six years from first renting. The clock starts on the first day you make the property available for rent — not when you bought it.
- One PPOR at a time. You can’t claim the exemption on your former home and a new home simultaneously.
- Vacant = unlimited. If you move out but don’t rent the property, the exemption continues indefinitely.
- Move back to reset. Returning to the property and re-establishing it as your main residence resets the six-year period.
- Exceeding six years = partial CGT. A pro-rata calculation applies. Get a market valuation the day you first rent.
- Foreign residents are excluded. Since 1 July 2020, Australians who are foreign residents for tax purposes at the time of sale cannot generally claim the exemption.
- No ATO notification needed. You claim the exemption in your tax return for the year you sell — it’s not a pre-approval process.
- Keep your records. Documentation of your residence period and rental period is your protection in an ATO audit.
If you’re unsure whether the 6 year rule applies to your situation, or you want to model the CGT outcome of different scenarios (sell now vs move back in vs hold for longer), speak with a qualified tax professional.
Box Advisory Services specialises in property tax accounting for investors across Australia. Book a free consultation to get advice tailored to your situation.
Frequently Asked Questions
How long do I need to have lived in the property before I can use the 6 year rule?
There’s no prescribed minimum period under the tax law. The ATO requires that the property was genuinely your main residence — not that you lived there for a specific number of months. What matters is whether you can demonstrate it was your home: utilities in your name, electoral roll registration, belongings there, and so on.
That said, the ATO will scrutinise very short occupancy periods, particularly if it appears the primary purpose was to gain the exemption rather than actually live there. As a practical guide, tax advisers generally suggest at least three to six months. If you’re a first home buyer, note that stamp duty concessions often require 12 months of continuous occupation — that’s a separate requirement to the CGT rule.
Does the 6 year clock reset every time I move back in?
Yes. Per the ATO’s guidance, each period of absence is treated separately. If you move out, rent for three years, then move back in and re-establish the property as your main residence, a fresh six-year period begins the next time you move out and rent again.
The ATO’s key requirement is that you genuinely re-establish the property as your home. That means updating your electoral roll registration, redirecting mail, and reconnecting utilities in your name — not just staying there occasionally.
Can I claim rental property deductions while using the 6 year rule?
Yes. The 6 year rule is a CGT provision — it determines what happens to the capital gain when you eventually sell. It doesn’t restrict your ability to claim annual tax deductions during the rental period. You still declare rental income and can claim eligible expenses such as loan interest, property management fees, council rates, insurance, and repairs.
What if I buy a new home while my old property is under the 6 year rule?
You can own multiple properties, but you can only nominate one as your main residence at a time. If you buy a new home and want it to be your PPOR, the 6 year rule stops applying to your old property from the date you nominate the new one. The old property will be subject to CGT for any ownership period not covered by the exemption.
You can choose to continue treating your old property as your main residence under the 6 year rule and not claim the exemption on your new property for that period — but this means your new home may face partial CGT when you sell it. This decision is best made with advice from a tax specialist.
What happens if I rent out my property for more than six years?
Only the period beyond six years will attract CGT. The gain is calculated on a pro-rata basis — a formula using the number of non-exempt days as a proportion of total ownership days from the date you first rented.
Crucially, the ATO uses the market value of the property on the day you first rented it as your deemed cost base (not what you originally paid for it). This is why getting a formal valuation on that date is so important — it becomes your CGT starting point for any assessable portion.
Do I need to notify the ATO when I start using the 6 year rule?
No. There’s no form to complete or pre-approval process. The 6 year rule is applied retrospectively when you prepare your tax return for the financial year in which you sign the sale contract. At that point, you calculate your CGT position and claim the main residence exemption if applicable. This is exactly why keeping detailed records from the start is essential.
Does the 6 year rule apply if I’m living overseas?
This depends on your tax residency status. If you remain an Australian tax resident while living overseas, the 6 year rule continues to apply. However, if you become a foreign resident for Australian tax purposes, you generally cannot claim the main residence exemption (including the 6 year rule) when you sell. This rule took effect from 1 July 2020. If you’re considering moving overseas, speak with a tax adviser before you go — timing the sale of your former home before departing may avoid a significant CGT liability.
Can I use the 6 year rule if I’m renting out only part of my home (e.g., to housemates)?
This is a common and complex situation. If you’re still living in the property but renting out rooms to housemates, you lose the full main residence exemption for the portion of the property being rented. The six-year rule applies from the moment you move out entirely (not while you’re still a co-occupant). Once you vacate and the whole property becomes income-producing, the six-year clock begins. Given the complexity of shared occupancy situations, professional advice is recommended.
Legislative Reference
The main residence exemption 6 year rule is legislated under Section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997). The ATO publishes detailed guidance, including worked examples, at ato.gov.au — Treating former home as main residence.
For complex situations — multiple absences, foreign residency, overlapping ownership periods, or rental followed by a new purchase — the legislation requires careful interpretation. This guide provides a general overview. For specific advice on your situation, consult a registered tax agent.
Disclaimer: This guide provides general information about the main residence exemption 6 year rule in Australia. It is not legal or tax advice. Tax rules are subject to change and individual circumstances vary. You should obtain professional advice tailored to your specific situation before making any decisions.
