The 6-year rule. Moving out of your PPOR and keeping the CGT exemption.

The 6-year absence rule is one of the most generous provisions in Australian capital gains tax law. It allows a property owner to move out of their principal place of residence, rent the property to tenants for up to 6 years, and still treat it as their main residence for CGT purposes when they sell.

The rule sits at the boundary between owner-occupier housing and investment property. Used correctly, it can save tens of thousands of dollars in CGT on the sale of a property that was rented for several years. Used incorrectly (or unaware), it gets missed and the saving disappears.

This post explains the rule, the conditions, and the common mistakes.

What the rule does

Under section 118-145 of the Income Tax Assessment Act 1997, you can choose to treat a dwelling as your main residence for up to 6 years after you cease to occupy it, even if you are renting it during that period.

The choice means:

• The capital gain on the dwelling during the 6 years is exempt from CGT (same as if you had still been living there)
• The rental income during the 6 years is still taxable (the rule does not exempt income)
• The property is not depreciable in the same way as a normal investment property (because it is still "the main residence")

The 6 years runs from the date you ceased to occupy the dwelling. If you return and live in the property again, the clock resets (you can use another 6-year period after the next departure).

Key conditions

Three conditions must be satisfied:

Condition 1: it was your main residence before you left

The property must have been your principal place of residence at some point before you ceased to occupy it. You cannot apply the rule to a property you bought specifically to rent.

The ATO looks at:

• Whether you actually lived in the property (not just held the title)
• Whether your driver's licence, electoral roll, utility bills were registered there
• Whether you genuinely treated the property as your home

A brief "moving in for a month then leaving" arrangement may not satisfy the ATO's test.

Condition 2: no other property is nominated as your main residence

The main residence exemption applies to ONE property at a time. While you are using the 6-year rule for Property A, you cannot also claim the exemption for Property B (where you might be currently living).

The choice is yours: which property do you nominate as the exempt main residence?

For most investors, the answer is: nominate the property with the larger expected capital gain. If Property A (the rented one) has appreciated 50% and Property B (where you live now) has appreciated 10%, nominate Property A. You pay CGT on Property B's smaller gain and protect Property A's larger gain.

Condition 3: the absence is for less than 6 years

The exemption is 6 years from departure. After 6 years, the property loses its main residence character and any further capital gain is subject to CGT (apportioned).

Importantly: returning to the property and living in it again resets the clock. You can repeat the 6-year rule for subsequent absences.

A worked example

You bought your inner-Brisbane apartment in 2018 for $620,000. You lived in it until 2022 when a job opportunity took you to Melbourne. You rented out the apartment and signed a Melbourne lease yourself.

In 2026, you decide to sell the Brisbane apartment for $920,000.

Without the 6-year rule

• Capital gain: $920,000 - $620,000 = $300,000
• Of this, 4/8 (lived in 2018-2022, rented 2022-2026) = 50% would be considered "main residence" time
• The 50% that was rental time would be subject to CGT
• CGT (50% discount for held over 12 months): $300,000 × 50% rental × 50% discount = $75,000 taxable
• At 37% marginal tax rate: $27,750 of CGT

With the 6-year rule (electing Brisbane as main residence for the absence)

• Brisbane apartment treated as main residence for the full 2018-2026 period
• Capital gain fully exempt: $0 CGT
• Tax saving: $27,750

The 6-year rule is worth $27,750 in this example. The application is a single line in your tax return when you sell.

The "no other PPOR" trap

The most common mistake with the 6-year rule: the taxpayer moved to a new city, bought another property, lived in it as their PPOR, and made an implicit claim that the new property was their main residence (by claiming PPOR exemption on it).

Once you nominate the new property as your PPOR, you cannot also use the 6-year rule on the old one. The choice is irrevocable at the time of sale.

The fix: think carefully before nominating a new PPOR. If the old property has more capital gain potential, hold off on nominating the new one. The new one can still be claimed as PPOR for the period from when you genuinely move in and stop using the 6-year rule on the old one.

This requires record-keeping. The dates of your decision matter.

Re-occupation: resetting the clock

If you return to the original PPOR and live in it again as your main residence, the 6-year period resets. The next time you depart, you have another 6 years of eligibility.

Some taxpayers use this strategically. They live in a property, move out and rent it for 5 years, return and live in it for 12 months, then move out again for another 6 years. The total period of CGT-exempt treatment is 11+ years.

The ATO requires that the re-occupation be genuine, not just a paper return. You need to actually live in the property for the period you claim residence.

The interaction with depreciation

Properties under the 6-year rule are treated as main residences, not as standard investment properties. The implication:

• Capital works depreciation is still claimable (it does not affect main residence status because it is structural)
• Plant and equipment depreciation rules apply differently
• The cost base for any future CGT calculation may need to account for depreciation claimed

This area is complex enough that an accountant should be consulted before relying on the 6-year rule for substantial properties.

When the 6-year rule does NOT apply

Two scenarios where the rule does not save tax:

Scenario 1: you never lived in the property

Investment properties that have never been your main residence are not eligible. Full CGT applies on sale.

Scenario 2: you used another PPOR exemption during the absence

If you nominated another property as your PPOR (e.g. you bought and lived in a new place during the 6 years), the 6-year rule on the original property is unavailable for that period.

The CGT is then apportioned: the period where you used the rule is exempt, the period where you used another PPOR is taxable.

What to do

Three habits:

Habit 1: document your residence

Keep records of when you moved in, when you moved out, and where you lived during any absence. The ATO requires evidence.

Habit 2: think about the nomination before tax return time

If you own multiple properties, the choice of which to nominate as PPOR matters. Talk to your accountant before lodging your return for the year of sale.

Habit 3: do not assume the rule applies automatically

The 6-year rule is a choice. You must elect to use it. The election is made by the way you report the sale in your tax return. Without the explicit election, the rule does not apply.

The 6-year rule is one of the largest tax-saving provisions available to Australian property owners. Knowing it exists, knowing the conditions, and electing it correctly is the difference between a tax-free sale and a $20,000-50,000 tax bill on the same transaction.