For many Australians, the family home is not only a place of comfort—it can also be a powerful tool for tax efficiency when used strategically. One often misunderstood benefit under the Capital Gains Tax (CGT) rules is the “6-Year Rule”—a key extension of the Main Residence Exemption that can potentially save homeowners thousands of dollars in tax.
In this post, we’ll explain how the 6-Year Rule works, when it applies, and how to make the most of it.
What Is the Main Residence Exemption?
Under Australian tax law, your main residence (i.e. your home) is generally exempt from Capital Gains Tax when you sell it. This means that if you’ve lived in a property as your primary residence for the entire time you’ve owned it, you can usually sell it without paying CGT on any capital gain.
But what happens if you move out and rent the property out?
Enter the 6-Year Rule
The 6-Year Rule is an extension of the main residence exemption. It allows you to treat your former home as your main residence for tax purposes for up to 6 years—even if you no longer live there—provided that you do not treat any other property as your main residence during that period.
This can be a smart tax planning opportunity if you're:
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Moving for work
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Travelling overseas
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Upsizing or downsizing
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Renting out your former home as an investment
How It Works (Example)
Let’s say you:
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Buy a house in 2018 and move in immediately.
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In 2020, you move interstate for work and rent out your home.
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In 2025, you sell the property.
As long as you don’t nominate another home as your main residence during 2020–2025, you can apply the main residence exemption for the entire ownership period—even though you rented it out for 5 years. This is because you’ve stayed within the 6-year limit.
Result? No CGT on the sale.
Resetting the 6-Year Clock
If you move back into the property, the 6-year period resets. You can then apply the 6-Year Rule again if you move out later. This can be particularly helpful if you’re rotating between multiple properties or planning long-term investments.
What If You Exceed 6 Years?
If you rent out the property for more than 6 years without moving back in, you may be subject to partial CGT liability. In this case, a capital gain (if any) will be apportioned based on the time the property was your main residence vs rental.
Good record-keeping of dates, rental periods, and costs is essential here to minimise CGT and maximise your exemption.
Key Points to Remember
✅ You must have genuinely lived in the property as your main residence before renting it out.
✅ The 6-Year Rule only applies if you don’t treat another property as your main residence during that time.
✅ You can use the exemption more than once, as long as you move back in and meet the criteria again.
✅ You should keep detailed records to support your CGT calculation and exemption eligibility.
The 6-Year Rule is a powerful tax strategy that can offer flexibility and savings for property owners navigating changes in life, work, or investment plans. However, the rules can be complex and timing matters—a small oversight could lead to a costly tax bill.
If you're planning to move out and rent your home, or you're thinking of selling a property you once lived in, our team at XTAS Partners & Sunfield Advisory can help you apply the 6-Year Rule correctly and minimise your capital gains tax exposure.
Contact us today for tailored advice on CGT planning and property tax strategies.