How you can rent out a former home and still keep it free of capital gains tax, for up to six years per absence.
If you move out of your home and rent it out, you might assume you've turned it into an investment property and lost the capital gains tax exemption that comes with a main residence. For up to six years, that's often not the case. Australia's "6-year rule", properly called the continuing main residence exemption for an absence, lets you keep treating a former home as your main residence, and keep it free of CGT, even while a tenant is paying you rent. Here's how the rule works, when the clock resets, what happens if you stretch past six years, and the traps that catch people out.
Your main residence is generally exempt from capital gains tax. Normally a property stops being your main residence the day you stop living in it. The absence provisions let you carry that exemption forward. According to the ATO's guidance on treating a former home as your main residence, you can continue treating a property as your main residence for up to six years if you used it to produce income such as rent, or indefinitely if you didn't earn income from it.
While the choice applies, the home stays exempt from CGT as if you still lived there, even though you're now collecting rent and claiming deductions. The trade-off: you can't treat another property as your main residence over the same period, bar a narrow six-month exception while moving between homes.
The single most important distinction is whether the property earns income during your absence. If you rent it out or make it available for rent, the maximum you can cover is six years. If you simply leave the home vacant, lend it to family rent-free, or use it as a holiday house, there is no time limit at all, you can treat it as your main residence for as long as you own it, provided you aren't treating another property as your main residence at the same time.
The ATO illustrates this with Bill, who lived in a unit for three years, then moved out while his son occupied it rent-free. Because the unit never produced income and Bill didn't nominate another main residence, he sold it twelve years later and claimed the full exemption, no six-year cap applied because no rent was ever charged.
The six-year limit is not a once-in-a-lifetime allowance. It applies separately to each period of absence that immediately follows a period you actually lived in the property. In practice that means if you move back in and re-establish the home as your main residence, then move out and rent it again, a brand-new six-year period begins for the second absence.
The ATO's example is Jez, who bought a house in 2005 and lived in it. He moved out for work in 2014 and rented it for five years, moved back in during 2019 and treated it as his main residence for two years, then moved out again in 2021 and rented it for a further three years before selling in 2024. Because the six-year limit resets with each absence, both the five-year and three-year rental periods fall under separate six-year windows. Jez can choose to treat the house as his main residence across both rental periods and disregard the entire capital gain on sale.
There's a related point about broken absences. The six-year clock counts only the time the property is producing income. In another ATO example, Lisa over ten years rented the property for three years, left it vacant for two, rented it again for three, then left it vacant for two more. Her income-producing time was six years exactly, vacant stretches don't count, so she could cover the whole ten-year absence and pay no CGT.
If a single absence involves income for more than six years, the property becomes subject to CGT for the period after the six-year limit. The mechanics matter here. Your cost base is reset to the market value of the home at the time you first used it to produce income, this is the "home first used to produce income" rule, and your taxable gain is worked out by apportioning over the days that fall outside the main residence exemption.
| Situation | CGT outcome |
|---|---|
| Former home left vacant or used rent-free | Treat as main residence indefinitely, fully exempt |
| Former home rented, single absence up to 6 years | Fully exempt for the whole absence if you make the choice |
| Former home rented, single absence over 6 years | Exempt for 6 years; taxed on the apportioned gain for days beyond |
| Multiple absences, each under 6 years | Each absence covered separately, can be fully exempt |
| Part of home used for income before you moved out | That portion is never exempt; gain apportioned by floor area |
| Foreign resident at the time of sale | Generally no main residence exemption at all |
The ATO's worked example is Roya, who bought an apartment for $180,000 and lived in it, then moved interstate in September 1999 and rented it out when its market value was $220,000. She kept renting it until selling for $555,000 in September 2024, with $15,000 of selling costs. She can treat the apartment as her main residence for a maximum of six years of the absence. Her cost base resets to the $220,000 market value at first income use. The capital gain is $555,000 − ($220,000 + $15,000) = $320,000, then apportioned over the 6,940 non-main-residence days out of 9,133 ownership days from the deemed acquisition date, giving an assessable gain of $243,162. After the 50% CGT discount, Roya reports a net capital gain of $121,581.
Because you generally can't have two main residences at once, the six-year rule forces a choice when you buy a new home while still owning the old one. In the ATO's James example, he bought in Brisbane in 2013, rented it out from 2015 after moving to Perth, bought a Perth home in 2020, and sold Brisbane in 2025. He chose to treat Brisbane as his main residence only until he bought in Perth in 2020, keeping that absence under six years and fully exempt, but the gain from 2020 to 2025 is then taxable. Covering Brisbane for the full six years instead would have exposed the Perth home for the overlap. There's no universally right answer; it depends on which property has the bigger gain.
The exemption only carries forward cleanly if the home was fully your main residence before you left. If you used part of your home to produce income while living there, say 25% as a consulting room, you can't get the main residence exemption for that part, either before or after you move out. The ATO's Helen example apportions her $400,000 gain so that the 25% business-use portion, or $100,000, remains assessable even though she elected the six-year rule for the rental period. For the detail on apportioning income-producing space, see the ATO page on using your home for rental or business.
The six-year rule isn't automatic, it's an election you make through your tax return, in the income year you sign the contract to sell, and you can choose how much of the absence to cover. The CGT event is triggered by the contract date, not settlement, so a sale signed in late June lands in that financial year even if it settles in July. You must report the CGT event and either claim the exemption or report the gain in that same year. The broader rules for what counts as your main residence are set out on the ATO's main residence page.
Disclaimer: This guide offers general information about the CGT main residence absence ("6-year") rule in Australia and is not financial or tax advice. The rules are detailed and depend on your circumstances. Always refer to the official ATO guidance on treating a former home as your main residence and consult a registered tax agent before acting.