Eternity Group

Technical Guide

The six-year rule: treating a former home as your main residence for CGT

How the absence choice in section 118-145 lets you keep treating a former home as your CGT-exempt main residence — the six-year limit while it earns rent, how the clock resets, the partial exemption past the limit, and the foreign resident restriction.

Published Updated Sources verified 10 min read

Applies to: Enacted law current at 13 July 2026; CGT discount figures stated for Tax Time 2026 (2025-26 returns); the Act 49 of 2026 CGT changes apply to CGT events happening on or after 1 July 2027 · Australia

The direct answer

Under the CGT absence rule in section 118-145 of the Income Tax Assessment Act 1997 — commonly called the six-year rule — you can choose to keep treating a former home as your main residence after you move out: for up to six years while it is used to produce income such as rent, or indefinitely if it is not. The trade-off is that you generally cannot treat any other property as your main residence for the same period (apart from up to six months when moving house), and exceeding the six-year limit, or being a foreign resident when you sell, changes the outcome significantly.

Key points

  • The six-year rule is a choice, not automatic: you can keep treating a former home as your CGT-exempt main residence for up to six years while it produces income such as rent, and indefinitely if it does not, per ATO guidance updated 22 June 2026.
  • You can only have one main residence at a time — making the choice for the former home means the home you actually live in is not exempt for the same period, apart from an overlap of up to six months when you are moving house.
  • The six-year limit applies separately to each period of absence: genuinely re-establish the home as your main residence and a fresh six years is available when you next move out. Within one absence, only income-producing time counts toward the cap — vacant periods are unlimited.
  • Exceed six years of income use in one absence and a partial exemption applies: the cost base resets to the home’s market value when it first earned income, the gain is apportioned by days over the limit, and the 50% CGT discount can reduce the assessable gain for Tax Time 2026.
  • The rule cannot cover any period before the property first became your main residence, and any part of the home used to produce income before you moved out stays outside the exemption.
  • Foreign residents at the time of the CGT event generally get no main residence exemption for disposals after 30 June 2020 — not even a partial one — unless they satisfy the life events test.
  • The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is law, and it does not change the main residence exemption or the six-year rule. It restructures the CGT discount for CGT events happening on or after 1 July 2027 — 0% for resident individuals and non-superannuation trusts on ordinary assets, with cost-base indexation available instead. The discount is not abolished, and the 50% discount still applies to CGT events happening before 1 July 2027.

The main residence exemption in brief

Your home is generally exempt from capital gains tax. The full main residence exemption applies where you are an Australian resident and the dwelling has been the home of you, your partner and your other dependants for your whole ownership period, has not been used to produce income, and sits on land of 2 hectares or less. A dwelling for this purpose includes a house, apartment, strata unit or retirement village unit — and even a caravan, houseboat or other mobile home. Vacant land is not eligible.

Whether a dwelling is genuinely your main residence is a question of fact. The ATO looks at factors including whether you and your family live in it, whether your personal belongings are there, whether it is your mail delivery address and your address on the electoral roll, and whether services such as gas and power are connected. Length of stay and your intention to occupy the home may also be relevant.

A property usually stops being your main residence when you stop living in it — which is where the absence rule, commonly called the six-year rule, comes in.

How the six-year absence rule works

Under section 118-145 of the Income Tax Assessment Act 1997, you can choose to continue treating a dwelling that ceases to be your main residence as your main residence — the ATO’s guidance calls this treating your former home as your main residence. While the choice applies, the home can remain CGT-exempt even though you have moved out and even though it is rented. How long the choice can run depends on whether the home is producing income.

How long the absence choice can cover, per period of absence
Use of the former home while you are awayMaximum period the choice can cover
Used to produce income — for example rented out, whether to long-term tenants or as short-stay accommodationUp to 6 years for each period of absence
Not used to produce income — for example left vacantIndefinitely — no time limit
A mix within one absence — rented for a while, vacant for a whileOnly the income-producing time counts toward the 6-year limit

The choice can only cover a period after the property first became your main residence. If you rented the home out before you ever lived in it, the exemption cannot apply to that earlier period — the property must genuinely have been your main residence first. And if you are earning rent from the former home while you are away, that income is assessable in the usual way — see our companion resource on how short-term rental income is taxed.

Only one main residence at a time

Making the choice for a former home means you cannot treat any other property as your main residence for the same period — apart from up to six months when you are moving from one home to another. In practice the choice shifts CGT exposure onto the home you actually live in for those years, so it is a decision to model before the sale, not a default.

You also control when the covered period ends. If you rented the former home out for five years, you can choose to treat it as your main residence for only three of those years, with the remaining two subject to CGT — for example, where you would rather the exemption sit with another home for the later period.

Restarting and breaking the six-year clock

The six-year limit is not once per property. It applies separately to each period of absence that immediately follows a period you lived in the property, and section 118-145 itself provides that you are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence. Genuinely move back in and re-establish the home as your main residence — the factors above — and a fresh six-year period is available when you next move out.

A period of absence ends when you stop renting the home and either move back in or leave it vacant. Within a single absence, only the time the home is actually producing income counts toward the limit — the six years can be broken. The ATO’s published example has a home rented for three years, vacant for two, rented for another three and vacant for two more — ten years away in total — still within the six-year limit, because only the six rented years count. Vacant periods are unlimited.

What happens past the six-year limit

If the former home produces income for more than six years within one absence, it becomes subject to CGT for the period beyond the limit — a partial exemption rather than none. The calculation runs through the home first used to produce income rule in the ATO’s guidance on using your home for rental or business: you are generally taken to have acquired the home at its market value on the day it first started producing assessable income. The rule applies where you acquired the property on or after 20 September 1985, first used it to produce income after 20 August 1996, would be entitled to only a partial exemption because of that income use, and would have had a full exemption immediately before the income use began. It does not apply while the home remains fully exempt under the absence choice, where the property was rented from the day you acquired it, or where you are a foreign resident when you sell.

Working out the assessable gain

  1. Reset the cost base. Start from the home’s market value at the date it first produced income and add the cost base amounts incurred since — which is why a contemporaneous market valuation matters.
  2. Calculate the whole gain. Sale proceeds less the reset cost base, including incidental selling costs such as agent’s and solicitor’s fees.
  3. Apportion by days. Multiply the gain by the number of days beyond the six-year limit, divided by your total ownership days counted from the deemed acquisition date.
  4. Apply the CGT discount. For Tax Time 2026 (2025-26 returns), Australian-resident individuals can reduce the remaining gain by 50% where the asset was owned for at least 12 months before the CGT event — the contract date for property. The discount is not available if you first started using the home for rental or business less than 12 months before disposing of it. For CGT events happening on or after 1 July 2027 the percentage changes under Act 49 of 2026 — see “Act 49 of 2026” below.

A separate restriction applies where part of the home earned income before you stopped living in it — a dedicated home-business area or a rented room. The continuing exemption cannot cover that part either before or after you move out. In the ATO’s example, a doctor’s surgery occupying 25% of a home meant 25% of a $400,000 gain — $100,000 — was assessable despite the six-year choice being made.

Foreign residents — a critical restriction

For property sold after 30 June 2020, a person who is a foreign resident for tax purposes at the time of the CGT event cannot claim the main residence exemption at all unless they satisfy the life events test. The exclusion is total: no partial or apportioned exemption and no access to the home first used to produce income rule — even if you were an Australian resident for most of the ownership period. Because a sale under contract is taken to happen on the contract date, your residency on the day you sign is what counts.

The life events test is satisfied if you were a foreign resident for tax purposes for a continuous period of 6 years or less and, during that period, one of the following occurred:

  • You, your spouse or your child under 18 had a terminal medical condition
  • Your spouse or your child under 18 died
  • The CGT event happened because of a formal agreement following the breakdown of your marriage or relationship

Important

If you are living overseas and considering selling a former Australian home, obtain advice from a registered tax agent before signing a contract of sale — residency at the contract date can be the difference between an exempt sale and a fully assessable one. (A transitional rule applied only to properties acquired before 7:30pm Canberra time on 9 May 2017 and disposed of by 30 June 2020, so it is no longer available for new sales.)

Making the choice and keeping the records

The choice is not a form you lodge in advance. You make it when you prepare your tax return for the income year in which you signed the contract of sale, simply by claiming — or not claiming — the main residence exemption in that return. The capital gain, loss or exemption is reported in the year of the contract date, not the settlement date.

Two record-keeping points do most of the heavy lifting. First, obtain a market valuation of the home when you first start using it for rental or business — ideally at the time, though the ATO accepts a valuation can be arranged later if necessary. Second, keep the records of buying, owning and selling the property — purchase contract, stamp duty, legal fees, settlement statements, interest, rates, land taxes, insurance, repairs, capital improvements and sale costs — for at least five years after you dispose of it, and keep your main residence records even while the home is fully exempt, in case circumstances change. Our CGT records checklist for property investors sets out the full list.

Act 49 of 2026 — what it changes, and what it leaves alone

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) received Royal Assent on 26 June 2026. It is law — not an announcement, and not a proposal. But commencement and application are different things, and neither of the measures below applies to the return you are lodging now.

The first point to be clear about is what the Act does not touch. It does not amend the main residence exemption. It does not amend the section 118-145 absence rule. The six-year absence rule described in this guide, the home first used to produce income rule, the one-main-residence limit and the foreign resident restriction all continue exactly as set out above — and the ATO’s main residence guidance, updated 22 June 2026, is unchanged.

What Schedule 1 changes, for CGT events happening on or after 1 July 2027, is the percentage applied to a gain that is assessable. The rewritten section 115-100 gives a resident individual — and a trust that is not a complying superannuation entity — a discount percentage of 0% on an ordinary asset, because none of the earlier paragraphs applies to the gain (para (f)). Paragraphs (aa) and (ab) preserve the 50% discount for individuals and non-super trusts, but only for CGT events happening before 1 July 2027. The CGT discount is restructured, not abolished.

Discount percentage for CGT events happening on or after 1 July 2027 (s 115-100 as rewritten)
Who or whatDiscount percentage
Resident individual — ordinary asset0% (residual paragraph (f))
Trust that is not a complying superannuation entity — ordinary asset0% (same residual paragraph)
Complying superannuation entity33⅓% — retained
New residential dwelling (s 115-102)50% — preserved
Affordable housing (s 115-125)Up to 60% — preserved

In its place comes cost-base indexation — but tightly confined. New section 110-36(1A) allows indexation for an individual or a trust where the CGT event happens on or after 1 July 2027 and the requirements of Division 114 are met, including the 12-month rule and, for individuals, new section 114-25 (neither a foreign nor a temporary resident at any time in the relevant period). New section 960-275(1B) indexes only expenditure incurred on or after 1 July 2027, and because Subdivision 112-E deems a sale and reacquisition just before that date, indexation on a property you already hold runs only from 1 July 2027 — not from when you bought it. Indexation may reduce a capital gain, but it cannot create or increase a capital loss.

What Schedule 2 actually does — and what it does not

Schedule 2 does not abolish negative gearing, and it does not limit it to new builds. From the 2027-28 income year, where deductions relating to residential dwellings used or held for residential accommodation exceed the assessable income from them, the excess is not deductible in that year: it is quarantined, may be applied against specified residential capital gains, and any remainder is carried forward. The deductions are deferred, not lost. The grandfathering test is precise — an ownership interest last acquired before 7.30 pm, by legal time in the Australian Capital Territory, on 12 May 2026 (s 26-155(2)(a)) — and for a dwelling acquired under a contract, the interest is held from the contract date, not settlement (s 26-155(3)). Complying superannuation entities and widely held unit trusts are carved out entirely.

Two things we will not tell you

Schedule 2 contemplates an exception for “new residential dwellings”, but the legislative instrument that defines the term under s 26-160(4) had not been made as at 13 July 2026 — so the exception cannot presently operate, and we do not describe requirements that do not yet exist. And we do not publish a worked CGT calculation for an event on or after 1 July 2027: the Subdivision 112-E deemed sale and reacquisition, and its interaction with Division 119 and with partial main residence calculations, is complex, and the ATO had published no guidance on Schedule 1 at that date. The 50% discount and the existing rules continue for Tax Time 2026. Both measures are worked through in our companion resources — the CGT discount changes from 1 July 2027 and negative gearing from 2027-28.

Hypothetical example — the ATO’s Roya example — 25 years away from the apartment

This is the ATO’s own published hypothetical from its “Treating your former home as your main residence” page — not a client outcome. Roya bought an apartment for $180,000 and lived in it as her main residence. On 29 September 1999 she moved interstate and rented the apartment out; its market value that day was $220,000. She treated no other property as her main residence. She sold the apartment for $555,000 on 29 September 2024, incurring $15,000 in agent’s and solicitor’s fees. Because the apartment was rented throughout the absence, the six-year rule covers only 29 September 1999 to 29 September 2005. Under the home first used to produce income rule, Roya is taken to have acquired the apartment on 29 September 1999 for $220,000, so her capital gain is $555,000 − ($220,000 + $15,000) = $320,000. The non-exempt period (30 September 2005 to 29 September 2024) is 6,940 days of 9,133 total ownership days from the deemed acquisition, giving an assessable gain of $320,000 × (6,940 ÷ 9,133) = $243,162 — reduced by the 50% CGT discount to a net capital gain of $121,581 in her return. Individual outcomes depend entirely on personal circumstances; this illustration is general information only, not advice.

This example is entirely hypothetical and illustrates the mechanics only. It is not a client outcome, a prediction, or advice.

Records that support the exemption and any partial calculation

  • Purchase contract, stamp duty and legal fees from acquisition
  • Market valuation of the home at the date it first produced income
  • Evidence the home was genuinely your main residence — electoral roll entries, mail delivery address, utility connections
  • Dates you moved in and out for each period of occupation and absence
  • Rental records showing when the home was producing income and when it was vacant
  • Interest, rates, land tax, insurance, repair and capital improvement records across the ownership period
  • Sale contract, agent’s fees and legal costs on disposal

Limitations of this information

  • This resource covers the standard absence rule for an individual’s former home; it does not cover deceased estates, subdivided land, or how the exemption applies where spouses live in different homes — those situations have their own rules and need specific advice.
  • Moving out and renting a former home can also have state land tax consequences (for example under NSW principal place of residence rules); land tax is outside this resource’s scope and was not verified here.
  • Foreign resident capital gains withholding on settlement is not covered — current rates and thresholds were not verified for this resource.
  • The Act 49 of 2026 statements are taken from the text of the Act, verified at 13 July 2026. No worked CGT calculation for a CGT event on or after 1 July 2027 is published here: the Subdivision 112-E deemed sale and reacquisition, its interaction with Division 119, and how indexation applies to a partial main residence calculation are complex and were not independently verified. The ATO had published no administrative guidance on Schedule 1 or Schedule 2 at that date.
  • The Schedule 2 “new residential dwelling” exception is not described: the legislative instrument defining the term under s 26-160(4) had not been made at 13 July 2026, so the exception cannot presently operate.
  • Figures and rules are stated as current at 13 July 2026, with the CGT discount stated for Tax Time 2026 (2025-26 returns); the exemption always depends on a valid choice, genuine occupation and your residency status — no outcome is automatic.

Practical next steps

  1. Record the date your former home first produced income, and obtain a market valuation as at that date if you do not already hold one.
  2. Before signing a contract of sale, work out which property you want the exemption to cover for each period — the choice is made in the return for the contract year, and it affects the other home you lived in.
  3. If there is any chance you are a foreign resident for tax purposes at the contract date, confirm your residency position before you sign.
  4. Assemble your ownership records using our CGT records checklist for property investors.
  5. For advice on your own facts, see our capital gains tax service or contact the practice.

Frequently asked questions

No. The six-year limit only counts time the property is used to produce income, such as rent. While the home is vacant or otherwise not earning income, you can treat it as your main residence for an unlimited period — provided you are not treating another property as your main residence at the same time. The ATO’s published example shows two three-year rental periods separated by vacancies, across a ten-year absence, still meeting the six-year limit.

Official sources

The facts in this resource are drawn from the following official sources, each read on the date shown. If a source has changed since, the source prevails.

  • Treating your former home as your main residenceATO · retrieved 12 July 2026 · supports: the six-year and indefinite absence choices, one-main-residence limit, restarts, broken rental periods, the apportionment example, part-income-use restriction and choice timing
  • Income Tax Assessment Act 1997 s 118-145 (absences)ATO Legal Database · retrieved 12 July 2026 · supports: the statutory basis for the choice, the six-year maximum per absence and the fresh-period wording
  • Eligibility for main residence exemptionATO · retrieved 12 July 2026 · supports: the full exemption conditions, what counts as a dwelling and the main-residence factors
  • Using your home for rental or businessATO · retrieved 12 July 2026 · supports: the home first used to produce income rule — its conditions and exclusions
  • Keeping records for propertyATO · retrieved 12 July 2026 · supports: the market valuation requirement and the five-year record-keeping period after disposal
  • Main residence exemption for foreign residentsATO · retrieved 12 July 2026 · supports: the foreign resident exclusion for disposals after 30 June 2020 and the life events test
  • CGT discountATO · retrieved 12 July 2026 · supports: the 50% discount for Tax Time 2026, the 12-month ownership condition, the home-recently-rented exclusion, and the alert that Budget changes do not apply to Tax Time 2026
  • Tax reform: boosting home ownership, reforming negative gearing and capital gains taxATO · retrieved 12 July 2026 · supports: that the ATO has published the 2026-27 Budget CGT and residential-property measures as enacted law, and that they do not apply to Tax Time 2026. The statutory detail of those measures in this resource is taken from the Act itself, not from this summary page
  • Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026)Federal Register of Legislation · retrieved 13 July 2026 · supports: the enacted status of the measures (Royal Assent 26 June 2026); Schedule 1 applying to CGT events happening on or after 1 July 2027; the rewritten s 115-100 discount percentages (0% for resident individuals and non-super trusts on ordinary assets under para (f); 50% preserved for CGT events before 1 July 2027 by paras (aa) and (ab); 33⅓% retained for complying superannuation entities; 50% under s 115-102 for new residential dwellings; up to 60% under s 115-125 for affordable housing); cost-base indexation under s 110-36(1A) subject to Division 114 (including s 114-25); the s 960-275(1B) limit to expenditure incurred on or after 1 July 2027 and the Subdivision 112-E deemed sale and reacquisition; that indexation cannot create or increase a capital loss; and Schedule 2 quarantining residential-property deductions from the 2027-28 income year, with the 12 May 2026 “last acquired” grandfathering and contract-date rule
Discuss your situation with us

This resource is general information for Australian residents, not tax advice. It does not consider your circumstances, and tax outcomes depend on individual facts. Speak to a registered tax agent before acting. It is also not financial product advice — we are not an Australian financial services licensee. Decisions about superannuation or other financial products should be discussed with a licensed financial adviser.

Last verified against official sources: · Next scheduled review by 13 October 2026 · Update sensitivity: high

Related technical resources

Practical ChecklistProperty

CGT records for property investors: what to keep, and for how long

A working checklist of the records the ATO expects property investors to keep for capital gains tax — the documents behind each cost base element, the purchase, ownership and sale files, retention periods, and what happens when records are missing.

Verified 13 July 20269 min read

Plain-English ExplainerProperty

How Airbnb and short-term rental income is taxed in Australia

A plain-English explainer on the tax treatment of Airbnb, Stayz and other short-term rental income — what to declare, how deductions are apportioned, why GST usually stays out of the picture, the CGT cost of hosting in your own home, and the holiday-home deduction rules the ATO will enforce in full for expenses incurred from 1 July 2026.

Verified 13 July 202610 min read

Regulatory UpdateTax

The CGT discount changes from 1 July 2027: what the law actually says

Schedule 1 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is law and commenced on 1 July 2026, but its substantive changes apply only to CGT events happening on or after 1 July 2027. This resource sets out exactly who keeps a discount, who falls to 0%, and how the replacement cost-base indexation is confined.

Verified 13 July 20269 min read

Regulatory UpdateProperty

Negative gearing from 2027-28: what the Act actually does

The residential-property deduction rules in Schedule 2 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 are enacted law and first apply to the 2027-28 income year. This resource sets out what the quarantining rule does, the precise grandfathering test, the carve-outs, and the one exception that cannot yet operate because its defining instrument has not been made.

Verified 13 July 202611 min read

Where this fits

Related services and guides