Updated 10 October 2026
The six-year rule in section 118-145 ITAA 1997 lets you keep treating a former home as your main residence for up to six years while it earns rent, and indefinitely if it sits vacant. Used properly it can wipe out CGT on the sale. The catch is a market valuation, taken the day the property first earned income, usually decides how much of the gain is taxed.
At a glance
- The six-year rule in section 118-145 ITAA 1997 lets you treat a former home as your main residence for up to six years while it earns rent
- If the property earns no income during your absence, the choice can run indefinitely
- Section 118-192 usually resets the cost base to market value on the day the home first earns income, and the reset is mandatory where it applies
- A fresh six-year period applies to each absence after you genuinely reoccupy the home
- Foreign residents at the time of sale generally lose the exemption for CGT events after 30 June 2020
In this guide
How the 6 year rule works
Move out of your home, rent it out, and section 118-145 of the Income Tax Assessment Act 1997 gives you a choice: keep treating it as your main residence for CGT purposes for up to six years. Sell within that window and the main residence exemption can cover the whole gain. If the property produces no income while you are away, the choice runs indefinitely, with no six-year cap at all.
The rule exists because life moves people around. A posting interstate, a stint overseas, moving in with a partner. The law does not force you to give up the exemption on your home just because you were not sleeping in it.
The six years apply per absence. If you move back in, genuinely re-establish the property as your home, and later move out again, a fresh six-year period starts for the new absence.
The conditions you must meet
- It was your main residence first. You must have actually lived in the property and established it as your main residence before the absence. A property rented out from settlement day never qualifies.
- Only one main residence at a time. Choosing to keep the old home as your main residence means you cannot also treat your new home as exempt for the same period, apart from the six-month changeover overlap in section 118-140. If you buy elsewhere, one of the two properties accrues a CGT exposure.
- The choice is made in your tax return. You make it in the return for the year the CGT event happens, which gives you hindsight. You can wait and see which property gained more before deciding which one to shelter.
- Residency status at sale matters. If you are a foreign resident for tax purposes when the CGT event happens, the main residence exemption is generally denied altogether for events after 30 June 2020, unless you were a foreign resident for six years or less and a specific life event applies. Expats relying on the six-year rule need advice before they sell, not after.
Note
The 2027 reform does not touch thisThe Treasury Laws Amendment (Tax Reform No. 1) Act 2026, enacted 26 June 2026, replaces the 50 per cent CGT discount with indexation and a 30 per cent minimum tax from 1 July 2027. The main residence exemption, including the six-year rule, is unchanged. But any part of your gain that falls outside the exemption is caught by the new regime, which makes the valuation below matter even more.
The CGT calculator prices the difference between a valuation and the apportionment formula for any Australian market and purchase year, with every step of the working shown.
The valuation trigger: section 118-192
Here is the part most owners miss. The day your former home first earns income, section 118-192 usually resets its cost base to the market value on that day. The reset is mandatory where it applies, not optional. It applies where the property first produced income after 20 August 1996 and you would have been entitled to the full exemption had you sold just before that day.
The reset is generous. Every dollar of growth while you lived there is wiped from the CGT calculation. Only growth after the tenants arrive can ever be taxed. But it turns entirely on one number: the market value at the date the property first earned income.
If you sell within six years and claim the full exemption, the valuation never gets used. If you exceed six years, buy another main residence, or become a foreign resident, the taxable slice of your gain is measured from that reset value. No contemporaneous valuation means a retrospective valuation years later, when the sales evidence from that period is harder to assemble.
Any taxable portion after the six years falls under the CGT discount changes from 1 July 2027.
Note
From our valuation filesAn owner moved out of her Melbourne home in February 2018 for a job overseas and rented it until she sold in mid-2025, seven and a half years later. The six-year absence period ran out in February 2024, so the last 18 months were not exempt. The gain was measured from the home's value when it first earned rent, not from her 2009 purchase price, so we valued it at February 2018 and the exempt and taxable portions were apportioned from there.
Details are changed. This is a composite of typical files rather than one client.
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Note
Worked exampleSarah bought an Adelaide home in 2016 for $480,000 and lived in it until March 2026, when she moved to Sydney for work and rented it out. Market value at first rental: $860,000, supported by a valuation. She sells in March 2034 for $1,100,000, eight years into the absence.
Her cost base resets to $860,000 under section 118-192. The six-year rule exempts the first six of the eight rental years, so only two-eighths of the $240,000 post-reset gain is assessable before any discount or indexation: $60,000. Without the reset and the six-year choice, the calculation would start from $480,000. The valuation protects $380,000 of growth from ever being counted.
The 6 year rule and the 1 July 2027 reset
The six-year rule itself is unchanged, but the 1 July 2027 reset still reaches a former home that is rented out and held across that date. The property is treated as sold and reacquired at its market value at the end of 30 June 2027, like any other affected asset.
If you later sell inside the six years and the exemption covers the whole gain, the reset changes nothing, because no part of the gain is taxed. If part of the gain is taxable, because the absence ran past six years or another home was treated as your main residence, that taxable part is measured across the reset. Growth to 30 June 2027 keeps the 50 per cent discount, and growth after it is indexed and taxed at a minimum of 30 per cent.
That leaves two value dates on the one file: the day the home first earned income, and the end of 30 June 2027. Both can be established later with a retrospective valuation, and the 1 July 2027 valuation page covers the second.
Can you use it more than once?
Yes. The six-year clock is not a lifetime allowance. Each period of absence that follows a period of genuinely living in the property gets its own six years. Move back in for a real period of residence, with your mail, utilities, electoral enrolment and belongings, then move out again, and a new six-year window opens.
What does not work is a token weekend stay between tenants. The ATO looks at whether the property was re-established as your home in substance. Length of stay, where your family sleeps, and where your possessions live all count.
Three traps that catch owners
- No valuation at the rental start date. The section 118-192 reset still applies, but you are left proving a years-old value later. A home to investment valuation at the time costs $297 and takes 24 to 48 hours. Reconstructing it a decade later is harder and the evidence is thinner.
- Claiming two exemptions at once. Couples with a home each, or owners who buy before selling, cannot shelter both properties for the same period beyond the six-month changeover. One property accrues taxable days, and its apportionment needs clean dates and values.
- Selling as a foreign resident. The exemption, six-year rule included, is generally lost if you are a foreign resident at the time of the CGT event. Timing the sale before departure, or after returning to Australian tax residency, can be the difference between zero tax and tax on the entire gain measured from the reset value.
Keep the paperwork that proves both the dates and the residence. Lease commencement, the agent's management agreement, connection and disconnection of utilities, electoral roll changes and mail redirection all establish when the absence began and that the property was genuinely your home first. The valuation gives you the number; these records give you the timeline the number attaches to. For owners holding the property past 1 July 2027, note the enacted reform adds a second value date to the file: the market value at 1 July 2027 that splits the gain between the old and new regimes, separate from the section 118-192 reset value.
Common questions
How does the 6 year rule work for CGT?
Section 118-145 lets you keep treating a former home as your main residence for up to six years while it produces income, and indefinitely if it does not. Sell within the window, meet the conditions, and the main residence exemption can cover the full gain. You cannot treat another property as your main residence for the same period.
Can I use the six-year rule more than once?
Yes. A fresh six-year period applies to each absence that follows a period of genuinely living in the property as your home. Moving back in must be real re-occupation, not a token stay between tenants.
Do I need a valuation when I start renting out my home?
Almost always, yes. Section 118-192 resets your cost base to market value on the day the property first earns income, and that value determines any future taxable gain. A valuation at the time is cheaper and stronger evidence than a retrospective valuation years later.
Does the 2027 CGT reform change the six-year rule?
No. The main residence exemption and the six-year rule are unchanged by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. Gains outside the exemption are subject to the new indexation and 30 per cent minimum tax rules from 1 July 2027.
Does the 1 July 2027 CGT reset apply to a home under the 6 year rule?
Yes. A former home that is rented out and held across 1 July 2027 is treated as sold and reacquired at market value at the end of 30 June 2027. If the six-year rule exempts the whole gain, nothing is taxed. If part is taxable, that part is split at the reset value.
