The six-year absence rule under Section 118-145 of the ITAA 1997 is one of the most valuable CGT concessions available to Australian property owners. It allows you to continue treating a former home as your main residence for up to six years while it is rented out, potentially making the entire capital gain on sale tax-free. But the rule has limits, and when those limits are exceeded, the property valuation you obtained (or should have obtained) at the date you first rented it out becomes the most important document in your CGT calculation.
How the six-year absence rule works
If you move out of your main residence and start renting it out, you can choose to continue treating it as your main residence for CGT purposes for up to six continuous years. During this period, if you sell the property, the entire capital gain is exempt from CGT, just as it would be if you had never moved out.
The key conditions are: the property must have been your main residence before you moved out, you must not nominate another property as your main residence during the absence period (you can only have one main residence at a time for CGT purposes), and the absence must not exceed six years of income-producing use.
If you move back in, the six-year clock resets. You can move out again and claim another six years of absence, provided you genuinely resume living in the property. There is no limit to how many times the clock can reset.
When the six-year rule saves you from needing a CGT valuation
If you sell within the six-year absence period and the full main residence exemption applies, you pay zero CGT. In this scenario, the conversion-date valuation is not strictly needed for CGT purposes (though it is useful for record-keeping and for calculating rental property deductions such as depreciation).
When the six-year rule expires and the valuation becomes critical
The six-year rule becomes a valuation issue in several scenarios:
You rented the property for more than six years
If you rent the property for longer than six years without moving back in, the main residence exemption applies only for the first six years of income-producing use plus the period you lived there. The remaining period is taxable. The CGT calculation uses a time-based apportionment:
Assessable capital gain = Total capital gain x (days as income-producing beyond 6 years / total days owned)
The total capital gain is calculated from the Section 118-192 cost base (market value at the date of first rental use) to the sale price. This is where the conversion-date valuation is essential. Without it, the starting point of the capital gain calculation is unsupported.
You nominated a different main residence
If you buy a new home while renting out the old one and nominate the new home as your main residence, the old property loses the main residence exemption from the date of nomination. The conversion-date valuation then becomes the cost base for calculating CGT on the old property for the period after nomination.
You used the property for mixed purposes
If part of the property was used for income-producing purposes while you lived there (for example, a home office used for business, or renting out a room), the six-year rule may still apply to the residential portion, but the income-producing portion requires a separate CGT calculation. Apportionment by area or usage is required, and a valuation helps establish the relevant values.
Practical example: exceeding the six-year rule
James bought a house in Melbourne in 2010 for $520,000 and lived in it until 2015. He moved overseas for work and rented it out from July 2015. He never moved back. In 2026, he sells for $1,050,000.
James rented the property for 11 years (2015 to 2026). The six-year absence rule covers 2015 to 2021. The remaining 5 years (2021 to 2026) are taxable.
If James obtained a valuation at July 2015 showing market value of $680,000:
- Total capital gain: $1,050,000 minus $680,000 = $370,000
- Taxable portion: $370,000 x (5 years taxable / 16 years total ownership) = $115,625
- After 50% CGT discount: $57,813
- CGT at 32.5% marginal rate: approximately $18,789
Without the 2015 valuation, James’s cost base would default to the 2010 purchase price of $520,000, giving a total gain of $530,000 and a proportionally larger taxable amount. The $245 valuation in 2015 (or a retrospective valuation now) saves James thousands.
The foreign resident trap
If you become a foreign resident for tax purposes during the absence period, the six-year rule is subject to additional restrictions. From 9 May 2017, foreign residents cannot access the main residence exemption for a CGT event that happens while they are a foreign resident (with limited transitional provisions). This means that even if you are within the six-year window, becoming a foreign resident can eliminate the exemption entirely.
If you are an Australian expat renting out your former home, the interaction between the six-year rule and foreign residency status requires careful analysis, and a conversion-date valuation is essential regardless of whether you expect to sell within six years.
Need a valuation for the date you first rented out your home?
Current or retrospective desktop valuations for any conversion date. $245 residential, delivered within 48 hours, all Australian locations.
The six year absence rule applies to property held personally, not to property inside a fund. Our sister brand CGT Valuations explains how the six year rule works and prepares the valuation the exemption relies on.
Frequently asked questions
Not strictly for CGT purposes, as the full main residence exemption should apply. However, getting a valuation at the conversion date is advisable because you cannot predict at the time whether you will sell within six years, and the valuation is also useful for rental deduction calculations.
CGT applies to the portion of the capital gain attributable to the period beyond six years, calculated using a time-based apportionment. The conversion-date valuation establishes the starting point of the capital gain calculation.
Yes. If you move back into the property and re-establish it as your main residence, the clock resets. You can then move out again and claim another six years. There is no limit to how many times this can occur, provided you genuinely resume living in the property each time.
The six-year rule itself still applies, but if you become a foreign resident for tax purposes, the main residence exemption may be denied entirely for any CGT event that occurs while you are a foreign resident (from 9 May 2017 onwards). The interaction is complex and requires professional advice.
Yes, but you can only nominate one property at a time. If you buy a new home during the absence period and nominate it as your main residence, the former home loses the exemption from that date.
