The 6-year rule for a former home explained

How does the 6-year rule work?

The main residence exemption normally stops when a property stops being your home. The absence rule keeps it running. Where the property earns income, such as rent, the exemption can be extended for up to 6 years from the date you moved out. Where it earns nothing, there is no time limit at all.

The choice is made in the tax return for the year of the sale, not at the time you move out, so the decision can be taken once the numbers are known.

What is the cost of choosing it?

The rule is a choice, and choosing it for one property means no other property can be treated as your main residence for the same period. If you bought a new home while renting out the old one, using the rule on the old property leaves the new one exposed for those years. Which choice is better depends on which property grew in value faster.

What happens if the property is rented for more than 6 years?

Only the first 6 years of that absence remain exempt. The gain for the period beyond it is assessable, apportioned by days: the gain multiplied by the non-exempt days, divided by the total days owned.

A further rule can apply where a home is first used to produce income after 20 August 1996. In that case the property is treated as acquired at its market value on the day it was first rented, so a valuation at that date matters.

Does the absence reset?

Yes. The 6-year limit applies to each separate period of absence that follows a period of actually living in the property. Moving back in and re-establishing it as your main residence starts a new 6-year window for any later absence.

Inside the rule, and beyond it

Lived in 8 years, rented 4 years, sold	Fully exempt, estimated tax $0
Lived in 8 years, rented 9 years, sold	Partly assessable, estimated tax $11,315
Gain in both cases	$400,000
Assessable gain in the second case	$70,588
After the 50% discount	$35,294

In the second case three of the nine rented years fall outside the 6-year limit, so that share of the gain is taxed. Both assume an owner with $100,000 of other income.

Try your own figures in the Australia capital gains tax on property calculator.