The 6-Year Rule Explained: How to Rent Out Your Home Tax-Free

You can rent out your home for up to six years and pay zero capital gains tax when you sell. Most property owners have no idea this exists—and those who do often trip up on the fine print.

If you've ever wondered whether you could rent out your family home without getting hammered by the ATO when you eventually sell, here's some good news: there's a rule specifically designed for you. The bad news? The ATO buried it in 47 pages of guidance, and one wrong move can cost you the entire exemption.

Let me walk you through how it actually works—and the traps I see people fall into.

What Is the 6-Year Rule?

The 6-year rule is part of the main residence exemption under Australian capital gains tax (CGT) law. In plain English: when you sell your home, you normally pay no tax on the profit. That's the main residence exemption.

The 6-year rule extends that protection. It lets you keep claiming the exemption for up to six years after you move out—even if tenants are paying you rent the whole time.

Here's the part most people miss: according to the ATO, you can treat your former home as your main residence for periods of absence of up to 6 years if you rented it out.

Translation: no capital gains tax on those six years—even though you were collecting rent.

Not bad for a rule nobody talks about.

When Does the 6-Year Rule Apply?

The 6-year rule only works if three conditions are met. Miss one, and you're back to paying CGT like everyone else.

1. The Property Was Your Main Residence First

You can't use the 6-year rule on a property you bought as an investment. It must have been your actual home before you rented it out.

Example: You bought a house in 2015 for $500,000, lived in it until 2018, then rented it out. The 6-year rule applies. But if you bought it in 2018 and went straight to tenants? No dice.

2. You Actually Rented It Out (or Left It Vacant)

The rule applies whether the property was:

Rented to tenants
Left vacant with no income
Used occasionally while primarily rented

Here's an interesting quirk: the ATO says if the property is not being used to produce income, you can treat it as your main residence indefinitely.

So if you moved overseas and left your house sitting empty—you might not need the 6-year rule at all. The full exemption could apply regardless of how long it sits vacant. (Yes, the tax code rewards you for not earning income. Don't ask me to explain the logic.)

3. You Didn't Establish Another Main Residence During Those 6 Years

This is the trap that catches people.

If you buy a new home and treat it as your main residence while you still own the old property, you lose the exemption on the old property from that point forward.

Example: You move out in 2018 and rent out your old house. In 2020, you buy a new place and move in. From 2020 onwards, your old rental loses the main residence protection. Only 2018–2020 are covered.

One house-warming party. Tens of thousands in tax. That's the difference.

How the 6-Year Rule Breaks Down

Let's map it out so you can see what's taxable and what's not:

Period	Status	CGT Exemption?
Years 1–3: You lived there	Main residence	✅ Fully exempt
Years 4–9: You rented it out	Former main residence (using 6-year rule)	✅ Exempt if within 6 years AND no new main residence
Year 10 onwards: Still renting	Investment property	❌ Fully taxable

The good scenario:

2015: Buy for $500,000, live there
2018: Move out, rent it to tenants
2024 (6 years later): Sell for $800,000
Capital gain: $300,000
CGT payable: $0 (fully exempt under the 6-year rule)

The expensive scenario:

2015: Buy for $500,000, live there
2018: Move out, rent it to tenants
2020: Buy a new home and live in it (new main residence)
2024: Sell the old rental for $800,000
Capital gain: $300,000
CGT payable: Around $67,500 (after 50% CGT discount)

Same property. Same sale price. One real estate decision. $67,500 difference.

The Timing Rules: When the 6-Year Clock Resets

Here's something the ATO doesn't make obvious: the 6-year period doesn't have to be continuous. You can move back in, reset the clock, and use another six years.

Example:

2012–2018: You live there
2018–2020: You rent it out (2 years used of the 6-year rule)
2020–2022: You move back in (clock resets)
2022–2025: You rent it out again (another 3 years used)
Total exemption: The entire period from 2012–2025

This flexibility is genuinely useful if your life doesn't go according to plan—job relocations, relationship changes, family circumstances. But it also means you need to document everything carefully. The ATO loves paperwork.

How to Actually Claim the 6-Year Rule

Good news: you don't need to ask permission. The rule is automatic if conditions are met. But you do need to handle it correctly when you sell.

When You Prepare Your Tax Return

When you sell the property, you declare the main residence exemption and specify the dates you're claiming. You state:

Dates you lived there (100% exempt)
Dates of the 6-year absence rule (100% exempt)
Dates it was a pure investment property (fully taxable)

Keep Documentation

The ATO will ask for evidence. If you can't produce it, they can disallow the exemption entirely—plus interest and penalties.

What to keep:

Title deeds showing ownership
Rental agreements proving it was rented out
Council records or utility bills showing when you moved out
Evidence of where you actually lived (proving you didn't establish a new main residence)

I know keeping records for a decade sounds tedious. But so does writing a $67,500 cheque to the ATO.

The Traps That Destroy the 6-Year Rule

After seeing these mistakes come through the practice, here's what trips people up most often:

Trap 1: Establishing a New Main Residence

This is the big one. Moving into a new house and treating it as home can accidentally void the exemption on your old property. Most people don't even realise it happened until they sell.

The rule is clear: you can own multiple properties, but you can only have one main residence at a time for CGT purposes.

⚠️ Before you buy a new property: Confirm with your accountant which will be your main residence. Get it in writing.

Trap 2: Forgetting to Claim It

The exemption isn't automatic on your tax return—you have to claim it. I've seen people sell and just pay CGT on the whole gain because nobody told them to claim the 6-year rule.

Ask your accountant specifically: "Does the 6-year rule apply here?" If you ever lived in the property, the answer is almost certainly yes.

Trap 3: Mixing Business and Personal Use

If you used part of the property for a home-based business and claimed depreciation on that portion, that part loses the main residence exemption—even under the 6-year rule.

How to protect yourself: Document how much floor space was used for business. Only that percentage loses the exemption.

Trap 4: Properties in Trusts or Companies

The main residence exemption only applies to properties owned personally. If you hold the property in a trust or company, you can't use the 6-year rule—even if you lived there for years.

The lesson: If you're planning to rent out your home later, keep the title in your personal name.

Who Benefits Most From the 6-Year Rule?

The 6-year rule is most valuable for:

Career relocators: Posted to a different city for a few years? Rent out your family home rather than sell. The 6-year rule means the entire period—including the sale—is tax-free.

Relationship transitions: You moved out but aren't ready to sell. The 6-year rule gives you breathing room to sell when the market is right, not when you need to divide assets quickly.

Growing families: Moving to a larger home but want to keep the old one as an investment? The first six years of rental income come with zero CGT risk.

Accidental landlords: Life changed and you ended up renting out a property you planned to return to. The 6-year rule still protects you.

What You Should Do Now

1. Check Your Properties

Do you own a property that was once your main residence but is now rented or vacant?

If yes: don't sell without checking whether the 6-year rule applies. A single miscalculation could cost you tens of thousands.

2. Document Your Intentions

If you're planning to rent out your main residence:

Write it down—formally document your intention to treat it as your main residence under the 6-year rule
Keep it with your records—store this with your title deeds and rental agreements
Be consistent—if you claim it as an investment property before selling, you lose the exemption

3. Get Advice Before Buying a New Home

Before you buy another property while still owning this one:

Clarify with your accountant which will be your main residence for CGT purposes
Confirm it won't trigger a loss of the exemption on your old property
Get written confirmation so there's no ambiguity later

The Bottom Line

The 6-year rule is one of the best tax breaks available to Australian homeowners—but only if you understand the conditions and avoid the traps. You can rent out your home for six years and pay zero capital gains tax on that period.

But one wrong move—establishing a new main residence, holding it in a trust, or simply forgetting to claim it—can cost you the entire exemption.

If you own a property that was once your home, don't guess what you owe. Ask specifically: "Can I use the 6-year rule here?" The answer could save you tens of thousands.

Sources & Further Reading

Disclaimer: This article is for general information only and should not be considered financial or tax advice. CGT rules are complex and circumstances vary. Always consult a qualified accountant or tax professional before making decisions about your property or relying on the 6-year rule.