The capital gains tax 6 year rule lets you keep treating a former home as your main residence for up to six years after you move out, even while it earns rent. If you sell inside that window the gain is usually fully exempt. The catch is that you cannot treat any other property as your main residence for the same period.

That last sentence is where most of the money is won or lost, and it is the part almost nobody explains properly. Plenty of articles will tell you the six year rule exists. Very few will tell you what it actually costs to use it when you have bought somewhere else to live, or that there are now two separate valuation dates that decide your final tax bill.

I am Mina Baselyous, a Chartered Tax Advisor (CTA), Certified Practising Accountant (CPA) and Registered Tax Agent in Melbourne. This is one of the questions we field most often from business owners who are moving house and keeping the old place. Below is how the rule really works, three worked examples with real numbers, and the two dates you need a valuation on.

What the 6 year rule actually is

The 6 year rule is the absence rule in section 118-145 of the Income Tax Assessment Act 1997. When a dwelling stops being your main residence, you can choose to keep treating it as your main residence anyway. If it earns income such as rent, that choice is capped at six years for each absence. If it earns nothing, the choice runs indefinitely.

The Australian Taxation Office states the position plainly in its guidance on treating a former home as your main residence, last updated 22 June 2026: the property continues to be exempt from CGT as though you still lived in it, and you cannot treat any other property as your main residence during that time, apart from up to six months when you are moving house.

Three features of the rule are worth knowing before you go further.

• It is a choice, not an automatic entitlement. You make it in the tax return for the year the sale contract is signed, not when you move out. That means you can run the numbers years later and pick the better outcome.
• The six years applies to each absence separately. If you move back in and genuinely re-establish the property as your home, a fresh six year period becomes available on the next absence. There is no lifetime cap on the number of periods.
• Vacant time does not count. The six year limit only bites while the property is producing income. Leave it empty and the clock stops.

The condition most people fail before they start

You must have genuinely established the property as your main residence first. The absence rule extends an exemption you already had. It cannot create one you never had. If you bought a property and rented it out immediately, section 118-145 is unavailable for that dwelling permanently, and no amount of moving in later fixes it.

Whether a dwelling was genuinely your main residence is a question of fact. The ATO looks at whether you and your family lived there and kept your belongings there, whether it was your mail address, whether you were on the electoral roll at that address, and whether utilities were connected in your name. Length of stay matters, and so does your intention when you moved in.

In our experience the failure is almost never deliberate. It is a client who moved in for a few weeks between settlement and a renovation, assumed that was enough, and kept no evidence of it. Eight years later there is nothing to point to. Keep the connection notices, the redirection confirmation and the insurance certificate from the period you lived there, because they are the only proof that survives.

Can you use the 6 year rule if you buy another home?

Yes. Owning and living in a second home does not disqualify you from the absence rule. What it does is force a choice, because you can only have one main residence at a time. If you claim the old home for a period, the new home is not exempt for that same period, and a slice of its eventual gain becomes taxable.

This is the single most misunderstood part of the rule, so it is worth being precise about why the answer is yes. Section 118-145(4) says you cannot treat any other dwelling as your main residence while you apply the absence rule. Parliament would not need a rule prohibiting a second main residence unless the absence choice were available to people who have one. The subsection assumes the second home exists and regulates the consequence. It does not block the choice.

The ATO’s own worked example confirms it. In Example 1 on the guidance page above, a taxpayer buys a house in Brisbane, moves to Perth and rents the Brisbane house out, then buys a new house in Perth and moves into it, and later sells Brisbane. The ATO accepts that he can treat the Brisbane house as his main residence from the day he moved out until the day he bought the Perth house, and claims a partial exemption on that basis. He is then subject to CGT on Brisbane for the period after the Perth purchase, because he chose not to extend the claim.

So the real question is never “can I use it”. It is “which property should carry the exemption, and what does the other one cost me”. That is a dollar comparison, and it is worth doing properly.

Worked example one: selling inside six years

When the old home sells inside the six year window and no competing claim is made on the new home, the result is a full exemption. No apportionment, no valuation arithmetic, no tax.

Daniel buys a house in Altona in 2019 for $720,000 and lives in it as his main residence. In September 2026 he moves into a new home and rents Altona out. He sells Altona in March 2031 for $1,250,000, which is four and a half years into the absence.

• The absence began September 2026, so the six year limit runs to September 2032.
• The March 2031 sale falls inside that window.
• Daniel chooses the absence rule for Altona in his 2030-31 return. The entire gain of roughly $530,000 is disregarded.
• He still reports the CGT event and claims the main residence exemption. The reporting obligation does not disappear just because the tax does.
• The cost: his new home cannot be his main residence from September 2026 to March 2031, so those years become non-main-residence days when he eventually sells it.

If Daniel had rented rather than bought his new home, there would be no cost at all. That is the cleanest version of this strategy and the one we steer clients toward when the timing allows it.

Worked example two: going past six years

Exceeding six years does not destroy the exemption. It converts it into a partial exemption, and it triggers a rule that usually helps you more than the lost years hurt: the home first used to produce income rule in section 118-192.

That rule deems you to have acquired the dwelling on the day it first earned income, at its market value on that day. Both halves matter. The cost base resets, and so does the acquisition date, which shortens the ownership period used in the apportionment formula.

Sarah bought in 2015 for $600,000 and lived there until September 2026, when she moved into a new home and rented the old one out. Its market value in September 2026 was $950,000. She sells in September 2034 for $1,400,000 with $35,000 of agent and legal costs.

Deemed acquisition	September 2026 at $950,000
Deemed ownership period	Sept 2026 to Sept 2034 = 8 years
Exempt under the absence rule	Sept 2026 to Sept 2032 = 6 years
Non-main-residence days	Sept 2032 to Sept 2034 = 2 years
Capital gain	$1,400,000 less ($950,000 + $35,000) = $415,000
Assessable proportion	2 divided by 8 = 25%
Assessable gain before any discount	$103,750

Notice what never appears in that calculation: the $600,000 she actually paid in 2015, and the eleven years she actually owned it. Both are wiped out by the section 118-192 reset. Eleven years of growth from $600,000 to $950,000 is simply not taxed. The reset is doing more work for Sarah than the six year rule itself.

Because the sale happens after 1 July 2027, that $103,750 is then split again under the new CGT rules. More on that below.

Worked example three: which home should carry the exemption

When you buy a second home rather than rent one, the six year rule stops being a free win and becomes a trade. The exemption is not created, it is moved. Whichever property you do not claim will carry the tax, and the two are rarely worth the same.

Take Sarah again. She keeps the old home and also buys a new home in September 2026 for $1,100,000, intending to stay there for decades. She now has two paths.

Path A: claim the old home for the six years

The old home is exempt from September 2026 to September 2032, producing the 25% assessable outcome above. The new home cannot be her main residence for those six years. If she sells it in 2050 after 24 years of ownership, six tainted years out of 24 means a quarter of the entire gain on her long-term family home is assessable, measured from the original $1,100,000 with no reset to soften it.

Path B: claim the new home from the day she moves in

The new home is fully exempt from September 2026 onward. The old home is exempt only up to September 2026, and because it starts earning income on that date, section 118-192 still resets its cost base to $950,000. Everything before September 2026 drops out. Only the growth after that date is assessable.

The asymmetry that usually decides it

Here is the structural point worth carrying into any conversation about this. The old home gets a market value reset. The new home does not, and never will, because section 118-192 only applies to a dwelling that starts producing income, and a home you live in never does.

So the cost of Path B is confined to the old home’s growth after September 2026. The cost of Path A is six tainted years spread across the whole life of the new home, applied to its full gain from the original purchase price. Where the old home is sold reasonably soon and the new home is a long-term keeper, Path B very often wins despite the instinct to protect the six year rule.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the mistake we see most is treating the six year rule as free money. It is a transfer, not a gift. The exemption has to sit somewhere, and the only question worth asking is which property it is worth more on.

The two valuation dates that decide your tax bill

There are now two dates on which you need evidence of your property’s market value, and missing either one costs real money. The first is the day the property first earns income, which fixes your cost base under section 118-192. The second is 1 July 2027, which divides your gain between the old CGT rules and the new ones.

Valuation one is the more urgent of the two, because the trigger date is whenever you first rent the property and there is no second chance. A formal valuation is best. A written agent appraisal with comparable sales is the minimum. An opinion obtained in 2034 about what a property was worth in 2026 is worth very little if the ATO asks.

What changes from 1 July 2027

The 50% CGT discount is being replaced for individuals, trusts and partnerships by cost base indexation plus a 30% minimum tax rate on capital gains. The ATO confirms these measures are now law and apply from 1 July 2027, and that the reforms only apply to gains that accrue after that date.

The mechanics come from the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received assent on 26 June 2026. For anyone who owns a property before 1 July 2027 and sells after it, the gain divides into two parts at the property’s market value on that date. Growth up to 1 July 2027 keeps the 50% discount. Growth after it is taxed on an indexed cost base with a 30% minimum rate.

For the six year rule this does not change who qualifies or how the apportionment works. It changes what happens to the assessable slice afterwards. Taking Sarah’s $103,750 from example two, the sequence becomes:

1. Work out the gain from the section 118-192 deemed cost base.
2. Apportion it for non-main-residence days to get the assessable slice.
3. Split that slice at the property’s 1 July 2027 market value.
4. Apply the 50% discount to the pre-2027 part and indexation plus the 30% minimum rate to the post-2027 part.

The practical consequence is that the longer you hold past 1 July 2027, the larger the share of your gain that sits in the new regime. For a property already earning rent, the 1 July 2027 valuation is not optional housekeeping. It is the number that decides how much of your gain keeps the discount.

When the 6 year rule does not help you

Four situations defeat or limit the rule, and three of them are fixable if you know about them early enough. The one that is not fixable is foreign residency at the time of sale, which removes the main residence exemption entirely regardless of how long you lived in the property.

• You were a foreign resident when the contract was signed. Under section 118-110(3), the main residence exemption is denied to foreign residents unless a narrow life events test is met. The absence rule does not survive it. Residency at the contract date is what counts, so the timing of a sale relative to a return to Australia can be decisive.
• The land exceeds two hectares. The exemption covers the dwelling and up to two hectares of adjacent land used primarily for private purposes. On a semi-rural block the excess is taxable no matter which path you choose, and the area you select should be decided deliberately rather than by default.
• Part of the home earned income before you moved out. If you ran a business from a room or rented part of the house while living there, the absence rule cannot be applied to that part, either before or after you leave. That proportion of the gain stays assessable.
• You never established it as your main residence. Covered above, and permanent.

One more that sits outside the income tax rules but hits the same decision: state land tax. A property that stops being your principal place of residence generally loses the land tax exemption from the following assessment year. For a Victorian property of any size that can be a meaningful annual cost, and it sometimes changes the hold-versus-sell answer on its own. Model it before you commit to keeping the old place.

What to do before you move out

The decision itself can wait until you sell, but the evidence cannot. Everything below has to be done at the time, and none of it can be reconstructed later.

1. Get a written valuation dated as close as possible to the first day of the tenancy. This is the single highest-value action on the list, and it applies whichever path you eventually take.
2. Diarise a 1 July 2027 valuation if you will still own the property then.
3. Keep proof that the property was genuinely your home before you left: utilities, electoral roll, mail, insurance.
4. Check the land size if the property is on a large block, and decide how the two hectares will be measured.
5. Model both properties before you buy the second one, not after. The purchase price of the new home is a fixed input to the comparison, and it is the one decision you cannot revisit.

For business owners the analysis usually runs wider than the two properties. Where the old home is held in one name, where the cash from a sale is heading, and whether a restructure is on the horizon all interact with this choice. That is the conversation worth having before the tenant moves in, not in the year you sell.

If you are weighing up a move and want the numbers on both properties before you commit, our tax planning work is built for exactly this kind of decision. It also pays to understand how the 50% CGT discount rule applies to your situation, and how capital gains tax works more broadly for Australian business owners.

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