Rent Your Property for 6 Years and Don't Pay CGT
The 6-year absence rule is one of the most powerful CGT exemptions in Australia. Learn how to use it to avoid capital gains tax.
What is the 6-Year Absence Rule?
The 6-year absence rule allows you to rent out your former main residence for up to 6 years and still treat it as your main residence for CGT purposes – making any capital gain CGT-exempt when you sell.
2018: Buy a home for $600,000 and live in it
2020: Move out and rent it for $500/week
2025: Sell for $900,000 (5 years after moving out)
Capital gain: $300,000
CGT payable: $0 (fully exempt under the 6-year rule)
This is a legitimate tax planning strategy that allows you to:
- Generate rental income for up to 6 years
- Claim tax deductions on rental expenses
- Sell CGT-free if done within the 6-year window
How the Rule Works
Step 1: Live in the property as your main residence
Step 2: Move out and rent it to tenants
Step 3: Continue treating it as your main residence for CGT purposes for up to 6 years
Step 4: Sell within 6 years of moving out to claim full CGT exemption
Mint's Fresh Take
The 6-year period starts from the day you move out and begin renting it, not from when you purchased it. Track your move-out date carefully.
Eligibility Requirements
To use the 6-year absence rule, you must meet these conditions:
- The dwelling was your main residence: You lived in it as your primary home before moving out
- No other main residence for CGT purposes: You can't claim the main residence exemption for another property during the absence period (except during the 6-month overlap period if you're transitioning to a new home). You can live elsewhere (e.g., in a rental), but you can only claim the CGT exemption for one property at a time.
- Income-producing use triggers the 6-year limit: The 6-year absence rule applies only when the property is used to produce income (rented out). If the property remains vacant and not used to produce income, there is no 6-year limit—you can continue claiming the main residence exemption indefinitely.
- Australian resident: You must be an Australian tax resident when you sell
Key Distinction
The 6-year rule is specifically for properties used to produce income (rental). If you leave your home vacant (not rented), you can claim the main residence exemption for an unlimited period, as long as you don't nominate another dwelling as your main residence for CGT purposes.
What Happens After 6 Years?
Once the 6-year period ends, the property is no longer treated as your main residence for CGT purposes.
Scenario 1: Sell After 6 Years
If you continue renting beyond 6 years and then sell, you'll need to apportion the capital gain based on the percentage of time the property was either your main residence or covered by the 6-year absence exemption, versus the time after the 6-year period ended.
2018: Buy for $600,000
2018–2020: Live in it as main residence (2 years)
2020: Move out and rent
2020–2026: Absent but claim 6-year exemption (6 years)
2026–2030: Absent beyond 6-year limit (4 years)
2030: Sell for $900,000
Total ownership: 12 years
CGT calculation (time-based apportionment):
- Main residence period (2018–2020): 2 years = Exempt
- 6-year absence exemption (2020–2026): 6 years = Exempt
- Beyond 6 years (2026–2030): 4 years = Taxable
Exempt portion: 8 ÷ 12 = 66.67%
Taxable portion: 4 ÷ 12 = 33.33%
Capital gain: $300,000
Taxable gain: $300,000 × 33.33% = $100,000
After 50% CGT discount: $50,000
CGT payable (at 37% marginal rate): $18,500
Scenario 2: Move Back In Before 6 Years
If you move back into the property before the 6-year period ends, it regains full main residence status and the exemption continues.
Mint Tip
Moving back in resets the clock – you can move out again and use another 6-year exemption period. However, continuous back-and-forth may attract ATO scrutiny.
Multiple Absences
You can use the 6-year rule multiple times over the life of the property:
2015-2018: Live in the property (main residence)
2018-2023: Rent it out (5 years – within 6-year limit)
2023-2025: Move back in (main residence)
2025-2030: Rent it out again (5 years – new 6-year period)
2030: Sell CGT-free (both rental periods within 6-year limits)
As long as each absence period is 6 years or less, and you move back in between absences, and you haven't purchased another property, the property will likely remain CGT-exempt.
Tax Deductions While Renting
During the 6-year period, you can still claim all rental property deductions:
- Mortgage interest
- Property management fees
- Repairs and maintenance
- Council rates and insurance
- Depreciation
This creates a unique situation where you:
- Earn rental income (taxable)
- Claim rental expense deductions (reduce taxable income)
- Avoid CGT when you sell (if within 6 years)
Mint's Fresh Take
The combination of rental deductions and CGT exemption makes the 6-year rule one of the most tax-effective property strategies available.
Buying a New Main Residence
If you buy and move into a new home during the 6-year absence period, you will need to treat the new home you live in as your main residence:
- Advantage: Your new home qualifies for the main residence exemption
- Disadvantage: The rental property loses the 6-year exemption and becomes partially subject to CGT
Common Mistakes to Avoid
- Holding beyond 6 years without planning: After 6 years, CGT starts accruing – sell before the deadline or move back in.
- Not documenting move-out date: Without proof of when you moved out, the ATO may dispute your claim.
- Claiming another property as main residence: Ends the exemption for the rental property.
- Not understanding partial exemptions: If you exceed 6 years, you need to calculate the taxable portion correctly.
- Forgetting to claim rental deductions: You can still claim all rental-related deductions during the 6-year period.
Record Keeping
To substantiate your 6-year absence rule claim, keep:
- Proof of when you moved out (lease agreements, utility disconnection, change of address records)
- Rental income and expense records
- Tenancy agreements for the rental period
- Records showing you didn't claim another property as your main residence
- Evidence of when you moved back in (if applicable)
Mint's Takeaway
- The 6-year absence rule allows you to rent out your former home and still claim the main residence CGT exemption when you sell.
- You can earn rental income and claim tax deductions while maintaining the CGT exemption.
- The 6-year period starts when you move out and begin renting the property.
- Selling within 6 years = full CGT exemption; selling after 6 years = partial exemption.
- You can't treat another property as your main residence during the 6-year period (unless in an overlap period).
- Moving back in resets the clock – you can use multiple 6-year periods over the life of the property.
- Keep detailed records of move-out dates, rental periods, and expenses to substantiate your claim.
Mint automatically tracks your occupancy timeline, rental periods, and move-out dates to help you maximize the 6-year rule benefits.