As at 15 August 2026. The six-year rule is section 118-145 of the Income Tax Assessment Act 1997, and it is not amended by the 2027 reforms. The separate capital gains tax reforms starting 1 July 2027 are now law [source: ato.gov.au]. What that Act does to the six-year rule is covered below, and the short answer is nothing.
The 6-Year Rule in One Paragraph
If a property was genuinely your main residence and you then move out, you can choose to keep treating it as your main residence for capital gains tax purposes, for up to six years while it earns rental income, or indefinitely if it earns nothing. Sell inside that window and the gain is disregarded entirely. The price is that you cannot treat any other property as your main residence over the same period, and you make the choice in the tax return for the year you sign the sale contract.
Here is the situation it is written for, because almost nothing on the topic is. You bought your first home, lived in it, then life moved: a job in another city, a partner with their own place, a bigger house. You do not want to sell, so you rent it out. Whether that gain stays yours then turns on this one rule. On a $300,000 gain for someone earning $120,000 it is the difference between a tax bill of about $63,850 and none at all [source: ato.gov.au], and it is routinely explained wrong. This guide covers it, and only it, in depth. For capital gains tax on property generally, see our capital gains tax in Australia guide, and our CGT calculator will price your own situation.
What the Six-Year Rule Actually Says
The rule is not called the six-year rule in the legislation. It is section 118-145, headed "Absences", and the parts that matter here are subsections (1), (2) and (3) [source: ato.gov.au].
The choice. In the words of the section: if a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. You are not doing anything to the property. You are keeping a legal characterisation alive after the facts have changed.
The six-year cap, which only exists if the property earns. The maximum period you can treat it as your main residence while you use it to produce assessable income is six years. Rent is the obvious case. So is a short-stay listing, and so is running a business from it.
No limit at all if it earns nothing. The ATO says you can keep treating a former home as your main residence "for up to 6 years if you used it to produce income, such as rent (sometimes called the '6-year rule')" and "indefinitely if you didn't use it to produce income" [source: ato.gov.au]. Its example is a man who moved out, let his son live there rent free, sold twelve years later and claimed the full exemption.
So the six years is not a rule about being away from your house. It is a rule about earning money from it while you are away.
The rule only covers capital gains tax: the rent is still assessable income every year, and it does not change your negative gearing position. The rule only affects the tax on the gain when you sell.
The Four Conditions Nobody Lists Properly
Four things have to be true. Miss one and the rule either does not apply, or applies to less than you think.
- It has to have been your main residence first. The ATO is explicit that the property must have "been your main residence first" and that "you can't apply the main residence exemption to a period before a property first becomes your main residence" [source: ato.gov.au]. Buy with a tenant in place and wait out their lease, and that opening period is gone permanently. The flip side is section 118-135: where the dwelling becomes your main residence by the time it was first practicable to move in after settlement, it is treated as your main residence from the date you acquired it, so a short delay for a renovation or an illness does not cost you the start of the clock [source: ato.gov.au].
- You have to have actually stopped living there. This is an absence rule. It starts when the property stops being your actual main residence.
- You cannot treat another property as your main residence at the same time. Section 118-145 says so, with one exception covered below. That is why the rule suits people who go back to renting far better than people who buy again straight away.
- You have to be an Australian tax resident when you sign the sale contract. Foreign residents are covered below, and the outcome there is harsh.
Notice what is not on that list: a minimum time you must live there first. There is no six-month or twelve-month occupancy requirement anywhere in the capital gains tax law. The ATO weighs instead whether the place was genuinely your home: whether your belongings were there, where your mail went, whether you were on the electoral roll there, whether utilities were in your name [source: ato.gov.au]. The occupancy periods you may have read about are conditions on state grants, stamp duty concessions and the federal deposit schemes, not CGT rules.
Does Moving Back In Reset the 6-Year Rule?
Yes, and the legislation is unusually precise: you get "another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence". That is subsection 118-145(2), word for word [source: ato.gov.au]. Read it slowly, because the popular version of this rule is looser than the law.
The trigger is not that you visited. The property has to become your main residence again, on the same factual test as the first time, and then cease to be it again. The ATO's example follows that shape: a man rents his house out for five years after he stops living in it, moves back in for two years, moves out and rents it for four more, then sells. The six-year limit "applies separately to each period of absence immediately following a period Jez lived in the property", so both rental stretches are covered and the whole gain is disregarded [source: ato.gov.au].
You will read a lot of advice that one night back in the house restarts the clock. Neither the law nor the ATO says that. There is no stated minimum, which cuts both ways: nobody can name a number you have to beat, and nobody can promise a token stay will survive scrutiny. If your plan depends on the reset, make the move a real one and have it confirmed.
Leaving it vacant is not the same as moving back in: the ATO's page reads both ways here. One bullet implies a period of absence ends when you stop renting and leave the place vacant, but its Example 2 adds a woman's two three-year rental stints together as six years across an intervening vacancy, noting it "doesn't matter if the 6 years is broken" [source: ato.gov.au]. The statute only plainly grants a fresh period when the dwelling again becomes and ceases to be your main residence. So take the conservative reading: vacant time does not burn the six years, but do not count on it restarting them.
What If You Rent It Out for More Than 6 Years?
You do not lose the exemption, you lose the part that sits past the six years, and a second rule quietly rewrites your cost base in your favour. The ATO's position is that if you produce income from the property for more than six years in one absence, it is subject to capital gains tax for the period after the limit [source: ato.gov.au].
First, the market value reset. Under the home first used to produce income rule in section 118-192, you are taken to have acquired the property on the day you first rented it out, at its market value that day [source: ato.gov.au]. All the growth up to that valuation drops out of the calculation, which for anyone who owned through a strong run of price growth is worth more than it sounds.
Second, the time apportionment. Section 118-185 taxes the fraction of the gain falling outside your main residence days [source: ato.gov.au]: assessable gain = total gain × (non-main residence days ÷ days in your ownership period), where the ownership period runs from the deemed acquisition date, not from when you originally bought.
With real numbers. Daniel bought in Perth in 2014 for $520,000 and moved in on settlement. On 1 July 2018 he moved to Sydney and rented the house out, and a valuer put it at $650,000 that month. He signed a contract to sell on 1 October 2026 for $980,000, paying $28,000 in agent and legal fees. His absence ran just over eight years, so it exceeds the cap by more than two.
| Step | Working | Result |
|---|---|---|
| Deemed cost base (s 118-192) | Market value on 1 July 2018 | $650,000 |
| Capital gain | $980,000 minus ($650,000 plus $28,000) | $302,000 |
| Six-year cover | 1 July 2018 to 1 July 2024 | Exempt |
| Non-main residence days | 2 July 2024 to 1 October 2026 | 822 days |
| Ownership period days | 1 July 2018 to 1 October 2026 | 3,015 days |
| Assessable gain | $302,000 × (822 ÷ 3,015) | $82,336 |
| After the 50% discount | $82,336 × 50% | $41,168 |
The six years shielded $219,664 of a $302,000 gain, and the market value reset kept four years of growth out of the calculation entirely. Days are counted inclusively and the non-main-residence run starts the day after the six-year cover ends, the way the ATO counts them in its examples.
Then it becomes ordinary income tax. On a $120,000 salary at 2026-27 rates, adding $41,168 costs about $14,182 in income tax plus $823 of Medicare levy, so roughly $15,006 [source: ato.gov.au]. With no absence choice at all the taxable half would have been $151,000 and the bill about $64,320, so the rule is worth roughly $49,314 to him. Those figures ignore offsets, other income and capital losses, and a large gain pushes you up through the brackets, so treat them as the shape of the answer rather than yours. Our CGT calculator runs yours.
Get the valuation on the way out, not on the way back: the ATO says you must get a market valuation when you first start using your home for rental or business [source: ato.gov.au]. Sell inside six years and the market value reset never applies, so it cost a few hundred dollars for nothing. Go past six years without one and you are reconstructing a value years after the fact, which is the version that goes badly.
Buying Your Next Home: the 6-Month Overlap
Because you can only hold one main residence at a time, buying again is where the six-year rule starts costing you. There is one narrow concession: section 118-140 lets you treat both dwellings as your main residence for up to six months, ending when you dispose of the old one [source: ato.gov.au].
Two conditions apply, and the second is the trap. The old home must have been your main residence for a continuous period of at least three months in the last twelve, and it must not have produced assessable income in any part of that twelve months when it was not your main residence [source: ato.gov.au]. So if you were renting the old place out, the overlap is not available to you. It is a rule for selling and buying in sequence, not for people who became landlords first.
If the sale takes longer than six months, the overlap covers only the final six months before disposal, and for the period before that you choose which home is your main residence, with the other exposed [source: ato.gov.au]. Our guide to the cost of selling a house covers the rest of the exit, and a conveyancer will keep the contract dates straight.
Three Ways First Home Buyers Break the Rule Without Realising
- Renting out a room before you move out. If you use any part of your home to produce income before you stop living in it, you cannot apply the continuing exemption to that part, before or after [source: ato.gov.au]. A housemate paying rent, or a spare room on a short-stay platform, permanently carves that share out: in the ATO's example, a quarter of a house used as a surgery made a quarter of a $400,000 gain assessable. The exception is where someone uses part of your home and pays you nothing for it.
- Becoming a foreign resident before you sell. Foreign residents cannot claim the main residence exemption for property sold after 30 June 2020 unless they meet the life events test, and if they fail it they get no partial exemption and no market value reset either [source: ato.gov.au]. That test needs a continuous period of foreign residency of six years or less and one of a short statutory list: a terminal medical condition affecting you, your spouse or your child who was under 18; the death of your spouse or of your child who was under 18 at death; or a CGT event arising from a formal settlement after a marriage or relationship breakdown. It is a completely different six years from the six-year rule.
- Forgetting that the contract date governs. The relevant year is the year you signed the sale contract, not the year it settled [source: ato.gov.au].
Do the 1 July 2027 CGT Changes Affect the Six-Year Rule?
No. The main residence exemption, including the six-year rule, is untouched, and the Act that made the changes goes out of its way to carve main residence days out of the new calculation.
Take the status first, because much of what is written about this is out of date. The reforms were announced in the 2026-27 Federal Budget on 12 May 2026 and are now law: the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received royal assent on 26 June 2026 as Act No. 49 of 2026, and the ATO's new legislation page states flatly that these measures are now law [source: ato.gov.au]. From 1 July 2027 the 50% discount is replaced by cost base indexation plus a 30% minimum tax rate, and only gains accruing after that date are affected [source: ato.gov.au, budget.gov.au].
Now the part that matters here. The Act does not amend section 118-145, or 118-110, or 118-185, or 118-192. Its treatment of the main residence exemption is the opposite of an amendment: when it splits a gain into a pre and post 1 July 2027 slice, it defines both ownership periods to exclude "a day or part of a day for which you can reasonably expect to disregard the capital gain because of Subdivision 118-B (about the main residence exemption)" [source: ato.gov.au]. Days your home is exempt, including days covered by the six-year rule, are lifted out of the new machinery before it starts.
So sell inside the six years and nothing about 2027 touches you. Go past six years and sell after 1 July 2027 and only the assessable slice is divided between the old 50% discount and the new rules. That split uses the property's market value just before 1 July 2027 by default, or an apportioning method if one has been determined and you choose it [source: ato.gov.au]. Either way it sits on top of the valuation you took when you first rented the place out, so it is a registered tax agent's job. Our CGT calculator compares the two regimes and our capital gains tax guide covers the reform in full.
The negative gearing changes in the same Act are about deductions on investment properties, and they do not touch the main residence exemption either. If you are weighing up keeping the old place and renting where you want to live, that is rentvesting: check our rental yield guide, our negative gearing guide and the land tax your state starts charging once the property is no longer your home.
Making the Choice, and What to Keep
You do not tell the ATO anything when you move out. There is no form and no election to lodge. The choice is made by how you complete your tax return for the income year in which you signed the sale contract, and the legislation says exactly that in the example attached to section 118-145 [source: ato.gov.au].
You can also stop the period early. The ATO confirms you can choose when to end the period covered by your choice, so if you rented the place for five years you can elect to treat it as your main residence for only three [source: ato.gov.au]. That matters because of the one-main-residence limit: if another property you own grew faster over the same window, you may be better off spending the exemption there.
Because you are proving facts years after they happened, keep the purchase contract and settlement statement, every cost in your cost base, the valuation from the month you first rented it out, the move-in and move-out dates with something contemporaneous behind them, and your rental records. If you are refinancing the old place into an investment loan on the way out, a broker can run that across lenders free, and our refinancing guide covers what changes.
This is general information about how the rules work, not tax advice. The amounts involved are usually large enough that advice pays for itself many times over.
Frequently Asked Questions
How does the 6 year rule work?
If a property was genuinely your main residence and you move out, you can choose to keep treating it as your main residence for capital gains tax for up to six years while it earns rent. Sell inside that window and the gain is disregarded. If it earns nothing while you are away, there is no limit at all. You cannot treat another property as your main residence over the same period.
Does moving back in reset the 6 year rule?
Yes. Section 118-145(2) grants another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence. The trigger is the property genuinely becoming your home again, not a token visit, and the law states no minimum stay. In the ATO's example a homeowner rented for five years, moved back in for two, rented four more, and both absences were covered.
What if I rent it out for more than 6 years?
You keep the exemption for the first six years and lose it only beyond them. You are then treated as having acquired the property at its market value on the day you first rented it out, and the taxable share is the total gain multiplied by non-main residence days divided by days in your ownership period from that date.
Can a couple have two main residences?
Not for the same period. Under section 118-170, where you and your spouse each have a different main residence you must either choose one dwelling as the main residence of both of you, or nominate the two separately and split the exemption. If you nominate separately, an interest of half or less in your chosen dwelling keeps it your main residence for the whole period; an interest above half means it counts for only half the period. Get advice before relying on either option.
Do the 2027 CGT changes affect the six-year rule?
No. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received royal assent on 26 June 2026, replaces the 50% discount with cost base indexation and a 30% minimum tax rate for gains accruing from 1 July 2027. It does not amend the main residence exemption, and it expressly excludes exempt days from the pre and post 1 July 2027 split.
Does the rule apply if I never rented it out?
The six-year cap does not apply at all if the property produces no income. The ATO says you can treat a former home you leave vacant, use as a holiday house, or let a family member occupy rent free as your main residence indefinitely, provided you are not treating another property as your main residence at the same time.
Do I need to tell the ATO when I move out?
No. There is no form to lodge and no election to make at the time. You make the choice by how you complete the tax return for the income year in which you signed the contract of sale, and you report the gain, loss or exemption in that same year. The relevant date is the contract date, not settlement.
Do I need a valuation when I start renting out my home?
Yes, if you might exceed six years. The ATO says you must get a market valuation when you first start using your home for rental or business. That value becomes your deemed cost base if you later get only a partial exemption. Sell within six years and the rule never applies, so the valuation is simply unused insurance.
Does the six-year rule apply if I moved overseas?
Only if you are still an Australian resident for tax purposes when you sign the contract of sale. Foreign residents cannot claim the main residence exemption for property sold after 30 June 2020 unless they satisfy the narrow life events test, and if they fail it they get no partial exemption either.
Is my rental income tax free under the six-year rule?
No. The six-year rule only affects capital gains tax on the eventual sale. Rent you receive while you are away is assessable income in the year you receive it, and you claim deductible expenses against it as any landlord would.
Related Guides
- Capital gains tax on property in Australia
- CGT calculator, current rules and the post 1 July 2027 rules
- Rentvesting in Australia
- The cost of selling a house in Australia
- Rental yield explained, city by city
- Negative gearing explained
This guide reflects the law as at 15 August 2026. The capital gains tax reforms taking effect on 1 July 2027 became law on 26 June 2026 under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Act No. 49 of 2026, and that Act does not amend section 118-145 or any other provision of the main residence exemption in Subdivision 118-B. This is general information, not tax advice, and it does not take your circumstances into account. The main residence exemption is high value and highly fact specific, so speak to a registered tax agent before acting. We update this guide when the ATO or the legislation changes. Sources: ato.gov.au, legislation.gov.au, budget.gov.au.
